Advertising Disclosure

The Different Types of Personal Loans to Consider

Victoria Love

2022-02-10

Personal loans are designed for individuals, not companies or organizations. They can be used for a number of different purposes, including financing the purchase of a vehicle, sending money to family members, and paying outstanding bills. There are several different types of personal loans available today, and this article will help you to choose the right one for your needs.

Best Personal Loan Lenders

1
SHOP MULTIPLE LENDERS
Simple Application
9.8

Better Penny score

Credible
Updated 2024
  • APR: 6.4% - 35.99%
  • Loan Terms: 1-10 Years
  • Credit Score: Fair/Good/Excellent
  • Amounts: $600-$200,000
4.8
TrustPilot Score

Based on 7391 User Reviews

Best
Consumer Interest

Based on the past 7 days

Excellent
Products and Services

Better Penny Review Score

Types of Personal Loans

Payday Loan: This type of loan requires full repayment when you get your next paycheck. Borrowers can use payday loans to buy anything they want as long as they have enough money to repay it in two weeks or less. To qualify for a loan like this consumers need to meet specific requirements such as working at least 20 hours weekly and maintaining an account with direct deposit. These kinds of loans typically have annual interest rates over 300%. 

This is one of the most expensive types of loans, which makes it a poor choice for people who do not manage their personal finances well. Payday Loans are also known as cash advances or check advances.

Secured Loan: This type of loan requires borrowers to pledge an item of value – such as a car or home – as collateral. This option is typically chosen by borrowers who cannot afford to repay the loan in a timely manner and do not want to risk losing their collateral through repossession. Secured loans can be good choices for people who need money quickly, however, the borrower must consider the fact that if he/she cannot repay this type of loan lenders may go after the collateral instead.

Type of secured personal loans includes:

1. Auto financing

2. Home equity lines of credit 

3. Home improvement loans 

4. Second mortgages


Unsecured Loan: As its name implies, an unsecured loan does not require you to offer any kind of collateral against the loan amount you receive. These types(home, car, or jewelry) as collateral when they apply for the loan. Secured loans typically have lower interest rates than unsecured ones because lenders can repossess assets in case borrowers default on payments. Another advantage is that secured loans are easier to qualify for than unsecured ones this is because less-than-perfect credit doesn't automatically disqualify you from receiving them. 

To ensure against default, unsecured personal loans are more likely to require borrowers to have good credit.


Line of Credit: This type of loan is also known as a revolving line of credit because the borrower can borrow money and repay it when he/she wants. Although these types of personal loans don't impose any specific repayment terms on the borrower, there usually is a limit on how much you can withdraw each month. Charges for this kind of loan will depend on what you use the cash for and your monthly balance but expect to pay 1% or 2% per month in interest charges. For example, if you take out $500 an APR (annual percentage rate) of 12.99% would apply to this loan. The APR for this loan you need to pay the interest and any fees as well as make a payment on the balance owed.

1-Year Loan: This type lasts for one year and requires full repayment at the end of the term. Like other types of personal loans, can be used toward anything as long as they can be repaid in a timely manner. Unfortunately, customers who choose this option must pay high interest because their repayments do not cover what has already been charged upfront by lenders.

3-Year Loan: Just like the 1-year loan, borrowers have to repay this type of personal loan in full at the end of three years. This option typically has lower APR rates than other types of personal loans because it goes for a longer period of time. However, people should consider whether or not they can afford interest fees instead of paying off the entire fee in 3 years.

5-Year Loan: Although this type requires complete repayment within five years, it usually has a lower APR rate than other types of personal loans because borrowers do not have to pay interest that accumulates over such a long time period. The biggest advantage is that if you cannot make your monthly payments during these 5 years then your interest charges will be significantly reduced as long as you continue to make payments on time.

Type of unsecured personal loans includes:

1. Personal Loans 

2. Student Loan 

3. Mortgage Refinancing 


Short-term Loan: Also known as a payday loan, this type of personal loan is typically given out in small amounts and requires borrowers to repay it quickly. Most states have passed laws that regulate the amount people can borrow from lenders because these loans tend to have extremely high-interest rates. In some cases customers end up paying almost 500% APR for a one-week loan! 

In addition, these types of loans mostly benefit lenders because customers who need quick cash end up having to pay more than they originally borrowed. Another problem is that if borrowers still cannot repay the loan then they will end up paying hefty fees for several months that only accumulate more interest.

Secured Credit Card: Rather than borrow money, credit card users can apply for an unsecured personal loan with their existing account balance. All they have to do is request extra cash from lenders which are willing to lend up to 50% of their available credit limit. While this type of loan is convenient, borrowers should be wary because it usually comes with high APRs and additional charges.


Conclusion

 If you're looking for a personal loan, there are many options to choose from. The most important thing is finding one that works best for your needs and situation. If you're interested in learning more about the different types of personal loans available, contact us today! Our team will be happy to help answer any questions or provide suggestions on how to find the right type of loan for you!