What Are The Most Common Types Of Personal Loans?

It can be difficult to try and borrow money, knowing that you have to give that money back, and with interest. But in many cases, you have no choice, due to the circumstances. And that being said, some types of personal loans can actually be very handy. It depends on the loan you want and there are some important aspects to take into consideration!

Payday loans

Although they are common, they are not exactly a good option. These are loans up to $1000 that you need to use an asset in order to secure the loan. And obviously, they tend to have a very high rate. Some have 200%, others go up to 400% interest rate. It’s a good idea to avoid them, unfortunately most Americans see these loans as their best fit, since they don’t really have a choice and they are rather easy to access a lot of the time.

Buy now, pay later loans

You most likely saw this type of loans, and they do appear to be very appealing to a lot of borrowers. The idea here is that you can split the purchase into smaller installments. You pay for one installment and get the loan, then the rest will be charged according to the agreement. It can be a great loan type, mainly because it’s designed to assist you in purchasing something right now. However, a lot of these loans tend to require a good credit score, so keep that in mind.

Personal line of credit

It’s basically revolving credit, which means the money gets drawn and repaid just like you would use a credit card. But instead of getting a lump sum, you have a credit line. That means you can borrow as you need funds, and the interest is paid only on what you borrowed. It’s actually a nifty approach and one that could help make the process easier and more convenient.

Co-signed loan

In this case, the idea here is that you have a friend or someone co-sign for the loan. That person has a strong credit score, which makes it much easier for you to qualify for the loan, so that’s definitely a very good idea to take into consideration. The co-signer promises to repay the loan in case the borrower doesn’t, but normally you want to avoid that as much as possible.

Debt consolidation loan

Such a loan rolls multiple debts into a new loan. The idea here is that you have a single payment that you need to make on a monthly basis. It does come in handy if you already have a lot of loans that need to get repaid. And for the most part, it is quite effective, if you want to avoid dealing with multiple loans that have to get repaid on a monthly basis.

Secured personal loans

As the name suggests, in this case you have loans backed by a collateral. That means the lender will take the asset/collateral if you’re not repaying the loan. A lot of the time, mortgages, auto loans can be seen as secured personal loans. Payday loans are also a type of secured loan, since you borrow against an asset.

Unsecured loans

Unlike a secured loan, this one is not backed by any collateral. Normally, lenders take a collateral in order to ensure that the loan will get repaid. However, in the case of unsecured loans, that is not going to be the case.

Variable rate loans

What makes a variable rate loan different? The name itself says it: the rate fluctuates based on the market condition. It’s both a good idea and a bad one. That’s because the rate can go down, which is good for you, but it can also go up quite a bit. That’s the reason why you want to think twice before getting a variable rate loan. It might sound great at first, but it also has its fair share of risks, so that’s something to take into consideration!

Cash advance loans (via apps)

There are some apps that can offer you a cash advance until you get paid. They do have a monthly fee they charge for these services. Plus, you will have certain limits until you have to repay everything. It’s important to make sure that you use these sparingly, however they can prove to be quite effective.

It’s quite common to take a personal loan from time to time, and in a lot of cases, it can prove to be very beneficial. That’s why it’s imperative to know the terms of any loan, and when you have to repay it. Once you do that, it becomes a lot easier to manage loans and figure out how to tackle them correctly. Rest assured that loans can prove to be very useful, but you should only use them if it’s absolutely necessary!