A Complete Guide For Types of Personal Loan

Personal loans are unsecured loans that let you borrow money for personal use. You can use personal loans to meet various financial needs like debt consolidation, home renovation, wedding expenses, travel, emergency medical expenses, and more. In this article, we’re going to discuss the different types of personal loans available to you in details and how to choose the best types of personal loans for you.

What is a Personal Loan?

A personal loan is a financial product that can help you meet your various needs, such as home renovation, wedding expenses, medical emergencies, and debt consolidation. It is a forms of unsecured loan similar to student loan and credit cards that can be availed from banks, credit unions, and online lenders. Personal loans are different from other types of loans, such as car loans or home loans, as they can works for any purpose.

Personal loans are becoming increasingly popular among borrowers due to their flexibility and ease of access. They offer a quick and hassle-free way to get funds without the need for any collateral. However, since personal loans are unsecured, lenders usually charge a higher interest rate to compensate for the risk involved.

Personal loans come with a fixed repayment period, usually ranging from 1 to 5 years. The repayment period depends on the loan amount and the borrower’s credit score. Borrowers can choose to repay the loan in installments every month or in a lump sum.

Before applying for a personal loan, it is essential to view and understand the terms and conditions of the loan, including interest rates, fees, and repayment options. It is also important to compare different lenders to find the best deal that suits your financial needs.

In conclusion, a personal loan can be a useful financial tool for those who need quick access to funds. However, it is important to use the loan responsibly and repay it on time to avoid any financial trouble in the future.

Secured personal loans

Secured personal loans are a popular option for people who need to borrow money but have a low credit score. They are also a good choice for those who need to borrow a large amount of money. Secured personal loans are backed by collateral, which is an asset you provide to the lender as security. The examples of collaterals include:

  • Car
  • Home
  • Property
  • Bank savings
  • Investment account

When you apply for a secured personal loan, the lender will assess the value of the collateral you are offering. They will then determine the amount of money they are willing to lend you based on the value of the collateral. Since secured personal loans are less risky for lenders, they come with a lower interest rate. This means that you will pay less in interest over the life of the loan.

The repayment period for secured personal loans can also be longer compared to unsecured loans. This means you will have more time to repay the loan, making your monthly payments more manageable. However, if you fail to repay your loan, the lender has a right to seize the collateral and sell it to recover the amount you borrowed. Therefore, thinking carefully about what asset you will pledge as collateral before applying for a secured personal loan is important.

It’s important to note that not all assets are suitable as collateral for a secured personal loan. For example, assets that are difficult to value or that are already being used as collateral for another personal financing may not be accepted. Additionally, if you are pledging your home equity as collateral, you should be aware that you could lose your home if you fail to make your loan payments.

Before applying for a secured personal loan, shopping around and comparing rates from different lenders is a good idea. You should also make sure that you view and understand all of the terms and conditions of the loan, including the interest rate, repayment period, and any fees or penalties that may apply.

In conclusion, secured personal loans can be a good option for people who need to borrow money but have a low credit score or need to borrow a large amount of money from lenders. However, it’s important to consider the collateral you are offering carefully and to understand all of the terms and conditions of the loan before applying.

Unsecured personal loans

Unsecured personal loans, as we previously mentioned, don’t require any collateral. These loans are riskier for lenders, which is usually reflected in the higher interest rate charged. Unsecured personal loans also have a shorter repayment period compared to secured loans. To get approved for an unsecured personal loan, you need to have a good credit score and a good credit history.

Debt consolidation loans

Debt consolidation loans are personal loans that are specifically designed to help you consolidate multiple debts into one monthly payment. Debt consolidation loans can help you streamline your finances and save money on interest payments. By consolidating high-interest debts (like credit card debt) into one loan with a lower interest rate, you could potentially save thousands of dollars in interest payments over the life of the loan.

Co-signed and joint loans

Getting approved for a personal loan can be difficult if you have a poor credit score or no credit history. In this case, you can start planning on applying for a co-signed or joint personal loan. Co-signed and joint personal loans involve a second person willing to assume the risk of the loan if you cannot pay back the borrowed amount to lenders. This could be a family member, friend, or spouse. Co-signed and joint loans can help you get approved for a personal loan at a lower interest rate.

Fixed-rate loans

A fixed-rate personal loan is a loan with a fixed interest rate for the entire duration of the loan. The pros of having a fixed rate loan is that you know exactly how much you’ll be paying each month, making your budgeting easier. Fixed-rate loans are ideal for those who want steady repayments and stable interest rates.

Variable-rate loans

Variable-rate personal loans, on the other hand, have fluctuating interest rates. This means your interest rate and repayment amount could change during the loan term, depending on the market rates. Variable-rate loans are suitable for those who can afford to be flexible with their repayments and want to take advantage of lower interest rates.

Buy now, pay later loans

Buy now, pay later loans are a kind of personal loan that lets you buy products and pay for them later. These loans are usually offered by retailers who allow their customers to buy products without paying immediately. Instead, the customer pays off the amount with additional interest in installment loans over a period of time.

How to choose the best type of personal loan for you?

The type of personal loan you choose will depend on your specific needs. Consider these factors before making a decision:

  1. Your credit score and credit history.
  2. Your employment and income stability.
  3. How much you need to borrow from lenders.
  4. The repayment period you’re comfortable with.
  5. Whether you have any assets that can be pledged as collateral.
  6. Your overall personal finance situation.

Conclusion

Personal loans can help you meet your financial needs when used responsibly. Make sure you learn how that loan works and consider the type of personal loans available to you and choose the one that best suits your financial situation and needs.

FAQs

What is a secured personal loan?

Secured loans are the types of loan where a collateral (home, car, property, etc.) is needed for the application. This loan is offered to applicants with low credit score.

What are 3 examples of secured loans?

The examples are mortgage, car loan, and life insurance. 

What types of loan is better? personal loans or secured loans?

A personal loan is more ideal because in most instances, it doesn’t require a collateral.

Is it a good idea to get a secured loan?

If the applicant is unable to service the loan, he or she may lose the collateral which the bank can repossess.