Types of Personal Loans
September 14, 2020
By Rahul Iyer
Personal loans are accessible to all consumers. It has become one of the most popular types of loans accessed by consumers. Personal loans are often used to consolidate debt, tackle unexpected expenses and to make large purchases. There are a number of different types of personal loan from which you can choose. In this article, we will discuss 5 of the common types of personal loans.
1. Unsecured Loans
An unsecured loan is a personal loan that is not supported or backed by collateral that is repaid via fixed monthly installments. These loans are relatively easy to get if you have good credit. Nonetheless, the amount that you will be able to borrow in an unsecured arrangement will be dependent on your credit score. The amount that you can typically borrow without collateral ranges from $50,000 to $100,000.
2. Secured Loans
A secured loan is a loan that is repaid in installments similar to a personal loan; however, the amount borrowed is backed by collateral. This type of loan is less risky for lenders which makes them more comfortable offering lower interest rates. Given that lenders will have the ability to take your asset if you default, they are usually less concerned with your credit score.
3. Co-signed Loans
In cases where you have poor or no credit, a cosigned loan may be the best option. Such a loan features an additional guarantor who pledges to cover the loan if you are unable to do so. These loans can either be secured or unsecured. Having a co-signer will result in you receiving a better loan arrangement from the lender.
4. Debt Consolidation Loans
When you take out a loan from a bank with the intention of combining various existing debts into one loan, it is referred to as a debt consolidation loan. This kind of loan can be much cheaper and convenient for a borrower. The funds can also be used to clear credit card bills, medical bills, payday loans, informal loans, and other personal loans. The benefit of doing this is that you can often find a single debt consolidation loan that features a lower APR than some of your other loans.
5. Personal Line of Credit
This loan is similar to a credit card in that it has a revolving form of credit. Instead of having a loan that makes you obligated to repaying monthly installments, a personal line of credit allows you to borrow only when you need the funds. Interest is then only charged on the outstanding balance. This kind of loan can be excellent for unexpected financial emergencies such as medical bills, car repairs, urgent home repairs and more.
Personal loans are not difficult to secure; nevertheless, it is your duty to ensure that you get the loan type that is most suited to your case. While banks are usually keen on this, it is important that you spend the time to figure out how much loan you can afford before taking out a personal loan.