Personal loans are a type of loan that allows flexible use, has short to modern term repayment options, and fairly speedy funding. You can use these loans for pretty much anything, from consolidating high-interest debts, starting up a business, paying expensive medical bills, or even going on the vacation of a lifetime.
Personal loans are great, and there are so many options within this type of loan, from what you can use them for, all the way to which type you can get, it is so lucrative for many.
However, they can be an expensive option in comparison with other loans, and debts. So it may not always be the ideal option for every person and every situation. So, you always need to consider a few things before you decide to take out a personal loan.
For example, if you are planning on using it for a vacation, remember you will be paying back this loan for a very long time, potentially years. Perhaps it is better for you to try saving up first, instead of putting yourself in debt for a trip away.
However, this is not all you must consider, you also need to think about which type of personal loan you will have.
How many types of personal loans are there?
There are so many different ways you can use these loans, and there are also plenty of types of personal loans.
There are in fact five types of personal loans we want to talk to you about today.
There are unsecured loans, secured loans, co-signed loans, debt consolidation loans, and personal lines of credit. Depending on your situation, you may want to choose a specific type of personal loan to take out.
Let’s look at these types in more detail.
What are the best types?
We cannot say that any of these types are better than the other, as it really depends on you as a person and what you need to use the loan for. So, we leave it up to you to decide.
Unsecured loans.
Unsecured personal loans are installment loans that are paid back in monthly increments over the course of time. Since they are not backed by collateral, they are typically easier to acquire if you have good credit.
Your loan eligibility and the amount you get depend on your credit score. Personal loan lenders will usually offer personal loans that range between $1,000 and $50,000, however, with some you can get as much as $100,000 if you have excellent credit.
These loans range in length from one year to six years.
Secured loans.
Alternatively, you could have a secured loan. Secured loans are installment loans that are backed by collateral, such as cars, savings accounts, homes, and so on. This means if you were to default on the loan, then the lender can seize ownership of your asset to cover all or part of the balance owed.
They are less risky for a majority of personal loan lenders, and they can also offer lower interest rates, which makes them one of the cheapest personal loans you can get. Lenders are also more flexible about the requirements as they have security.
Just remember, these are not a wise option if you may have difficulties paying back your loan.
Cosigned loans.
Cosigned loans are unsecured or secured loans with more than one party guaranteeing repayment. If you have bad credit or no credit history at all, a lender might ask that you have someone cosign, who will assume and pay the loan if you were to default. This is a form of insurance for the lender.
This is usually a wise option for those with bad credit. If you have bad credit, you can always check out CreditNinjas personal loans for bad credit.
Debt consolidation loans.
Debt consolidation loans combine multiple debts into a single loan with a single monthly payment. Borrowers can use this to pay off credit cards, medical bills, payday loans, and so on. They help you to reduce your overall monthly costs into one affordable payment with one interest rate. Therefore, this avoids multiple interest rates and late fees.
The one downside to this is that consumers can encounter the temptation to run balances back up on credit cards or other personal loans when they have finally consolidated their debt.
That being said, this type of personal loan can be a great option if you have the discipline to control your debt and your spending and if it offers lower APR than your existing debts.
A personal line of credit.
The last option is that you can qualify for a personal line of credit. This is a revolving form of credit, like a credit card. Opposite to an installment loan which involves a lump sum repaid in monthly payments, borrowers get a line of credit up to a certain amount which can be borrowed as needed. Interest is only charged on these on an outstanding balance.
These can be an option to cover unplanned expenses. Some lenders may offer secured lines of credit that are backed up by an asset too.
