There are many types of loans available for many different purposes. One group of loans is personal loans, which are meant to help people consolidate their pre-existing high-interest debt or make very large purchases. Here are five types of personal loans.
1. Secured Personal Loans
To put it simply, secured personal loans require the applicant to provide something as collateral in exchange for the loan. The most common type of secure personal loan is a mortgage, with the collateral being the home you’ve purchased and are paying for with the loan. Another common example is an auto loan, with the collateral being the car. Interest and annual percentage rates for secured personal loans tend to be lower due to the use of collateral.
2. Unsecured Personal Loans
An unsecured personal loan is the direct opposite of a secured loan in that an unsecured loan isn’t backed by any property as collateral. For example, MaxLend loans are unsecured loans because they don’t require applicants to provide any collateral. You should carefully check what kinds of loans a lender offers. This makes unsecured personal loans riskier and causes them to have higher interest rates or annual percentage rates. Some may offer only secured loans. Others, such as MaxLend, may only offer unsecured loans. Other lenders may offer both.
3. Co-signed Loans
A co-signed loan, also called a joint loan, is a personal loan signed by two applicants. The second signer does so to ensure the main signer is able to be approved for the loan, as the main signer of a co-signed loan is likely unable to qualify on his or her own. You may also choose to co-sign a loan in order to qualify for lower rates. If you’re interested in the latter, then you need to make sure your co-signer has good credit. He or she also must agree to pay back the loan if the main signer is unable to do so.
4. Buy-now, Pay-later Or Installment Loans
This type of loan can be called an installment loan or a buy-now, pay later one. When you have one of these personal loans, you’re able to pay for a purchase in small installments. This type of loan applies to a singular purchase, rather than a large, specific amount of money such as tuition. Typically, these loans are used for only one-time purchases you may online or with credit cards.
5. Lines of Credit for Personal Use
You can also apply for a personal loan that is a line of credit. Think of this type of loan as a credit card rather than a traditional loan. You can use it to pay for things as needed, particularly emergency expenses, such as car repairs, or recurring payments, such as bills. You’re only required to pay back and pay interest on the money you borrow from a line of credit.
There are personal loans for many different situations and needs. Make sure you choose the type of personal loan that makes the most sense for your situation, needs and preferences. If you’re unsure of what type of loan you need, then you should seek the assistance of a financial advisor.