A personal loan is a flexible type of loan available from a variety of lenders. These loans may be for a specific purpose or have an open-ended use. Though most are unsecured personal loans, some do have assets backing up the value. For those individuals who wish to borrow funds for any type of need, this type of lending opportunity is one option.
There are limits to them – many are hard to obtain without good credit. Others require assets to back up their value. If you are thinking about borrowing to pay for a wedding, fund a vacation, make some home improvements, or tackle other goals, choosing the best types of personal loans for your needs is important.
The Types of Personal Loans Explained
What are the types of personal loans available? Generally, a personal loan allows you to borrow funds to accomplish any task you need. Unlike a mortgage, which has the specific goal of purchasing a home, these funding options are more flexible. There are plenty of reasons to consider them, depending on your needs.
Before you make a decision, take a closer look at the options available to you. First, consider the difference between secured and unsecured personal loans.
What Is a Secured Personal Loan?
A secured personal loan is one backed by a valuable asset. If a person takes out a secured personal loan and fails to make payments on it, the lender can take possession of the asset to repay the debt owed.
Secured personal loans offer several benefits. Because there is an asset working as collateral, the loan is easier to obtain. Those who may have less-than-ideal credit may still qualify for the loan. In addition, it is less of a risk to the lender. For that reason, interest rates may be lower than an unsecured personal loan.
Secured loans are only available if you have a valuable asset available to pay for them. If you don’t have an asset that can appraise at a high enough value, you may be unable to secure this type of loan. Most lenders will only approve you for the value of the asset. Some may offer more than this, depending on your credit score.
What Are Unsecured Personal Loans?
Unsecured personal loans are just the opposite of a secured loan. These funds can be used without the use of collateral. The amounts range from $1,000 up to $25,000 or sometimes more.
Without any security needed, unsecured personal loans can be very accessible. You may have the freedom to use the funds for any need.
The downside of unsecured personal loans is that they are hard to obtain. Individuals must have a steady stream of income and a good credit score to obtain them. That’s because these loans have more risk to the lender. If the borrower stops making payment, the lender does not have any asset backing the value. Personal loans like this also tend to have higher interest rates, which means it costs more to borrow these funds.
What Is a Personal Line of Credit?
A personal line of credit, or personal installment loans, is another type of funding option available to many. Unsecured versions are available for many people based on credit scores. They work much like a credit card but tend to have a higher borrowing limit. Like credit cards, you may be able to use the funds, repay the funds, and borrow again. Most are unsecured loans, though some secured versions may be available.
What should you know about personal lines of credit:
- They can be hard to obtain.
- You need good credit to get most of them.
- The funds are versatile. You can borrow and pay back the funds over time numerous times.
What Are Debt Consolidation Loans?
Debt consolidation loans provide an opportunity for individuals to repay their debt in a new loan. These loans allow you to use a new line of credit to pay off your existing debts, such as credit cards, medical debt, and other personal loans. In some cases, they have a lower interest rate than credit cards. And, they allow you to consolidate multiple payments into one monthly payment.
There are a few things to know about debt consolidation loans:
- They can be secured, such as based on the equity in your home, or unsecured if you have good credit.
- Your lender may require you to use them to pay off your existing debt, therefore ensuring you don’t double the debt you have.
- Interest rates, terms, and borrowed amounts vary significantly from one lender to the next.
Wedding Finance Loans Explained
A wedding finance loan is an opportunity to borrow funds to use to pay for your wedding needs. Many couples use loans for wedding expenses and can pay for expenses ranging from the wedding dress to the vacation. The amount borrowed ranges significantly based on a borrower’s credit score. Wedding finance loans are a form of a personal loan since most do not require collateral to obtain them. Yet, borrowers will need good credit to qualify for them.
With wedding finance loans, consider:
- The interest rate on these loans can be high, depending on the borrower’s credit score.
- The amount available to borrow depends on the term length as well as the income and credit qualifications of the borrower.
- Some lenders will provide wedding financing. Some rental halls or third-party lenders may also offer them. Compare terms wisely before making a decision.
Vacation Loans and Travel Loans
Vacation loans, sometimes called travel loans, allow an individual to borrow money to travel. They are a simple personal loan. Both secured and unsecured personal loans are available for this type of use, but they can have high-interest rates. Secured versions, such as those backed by home equity, are more affordable. Borrowers must be well qualified to obtain them – usually with a steady income with proof of the ability to repay the loan.
Here are a few things you need to know about travel finance loans:
- They can be hard to obtain unless you have good credit overall and steady income.
- These personal loans may be less expensive than using credit cards overseas, making them worth exploring for many borrowers.
- The amount borrowed can e used for just about any need, though some lenders will not lend significantly for unproven borrowers for this need.
Medical Finance Loans
Individuals in need of help to repay medical bills may be able to take out a personal loan for them. Those who have good credit and steady income are more likely to be qualified for these loans. However, medical debt does not carry an interest rate in most cases, making medical finance loans a bit more expensive than paying the bill outright. For those who cannot do so, it may be wise to consider personal loans as a loan for medical bills.
- Verify and compare interest rates among lenders. As unsecured loans, these can be expensive in some cases.
- The amount you can borrow will range widely based on your credit qualifications, but most lenders will not lend out large sums of money to unproven borrowers.
- For those behind on debts, consider a debt consolidation loan for medical debt. This may help reduce some financial burden.
Home Improvement Loans
Making repairs to a home can be an excellent way to add value to it. Home improvement loans may help borrowers do this. If you have equity in your home, which is the value of the home that is above the amount owed on a mortgage, a home equity loan tends to be a more affordable option compared to a personal loan. This is a secured loan. However, it is possible for some borrowers to secure a home improvement loan without equity.
- Secured loans tend to have a significantly lower interest rate than unsecured home improvement loans.
- These loans can help a borrower to make repairs and upgrades to their home before listing it for sale, allowing them to pay off the loan in full at the time of the sale.
- Home improvement loans may require some backing by the lender if they are larger values.
Co-Signer Personal Loans
Individuals who have fair or lower credit may find very difficult to get a personal loan online. However, a co-signer loan may be able to open some of that up for you. Here, a second borrower is added to the application. This individual may be held responsible for the debt, as is the initial borrower. His or her credit, income, and references can help back up these loans to the lender. With more credit behind the borrower, this may make it easier for individuals with poor credit to obtain the loan.
There are a few considerations for co-signer personal loans:
- The co-signer should preferably have a better credit score and history to help support the borrower’s efforts.
- Bot secured and unsecured loans are available in this manner.
- Interest rates, terms, and overall borrowing amounts vary based on need but also on qualifications of both individuals.
Personal Loan Interest Rates Explained
When choosing personal installment loans, consider the interest rates of them as well. Some borrowers offer both fixed rate personal loans and variable rate personal loans. In all cases, you should loan shop to compare your options.
Fixed Rate Personal Loans
A fixed rate personal loan has an interest rate that remains the same throughout the lifetime of the loan. The monthly payment also remains the same. This helps borrowers to make consistent payments throughout the lifetime of the loan.
Variable Rate Personal Loans
Variable rate personal loans are a bit more of a risk because the interest rate can vary from year to year. This can make payments increase over the lifetime of the loan. Some variable rate loans offer a lower interest rate to start with, but it can rise to significantly higher rates down the road.
Which personal loan type is right for you? Take into consideration all of these options and then determine which one can help you to meet your financial goals. Most lenders do not use specific names for these loans. Rather, they want to know if you need a secured or unsecured personal loan, the value of it, as well as the use of it. Then, the lender can help you navigate each one of your options to determine the best fit. You can get a personal loan online through numerous lenders.
Ethan founded Goalry, Inc in Dec 2016 with the mission to build the world’s first and only Financial Goal Mall. One place to reach financial goals and comparison shop for any money matter. Taub invents the IP for the finance stores within the mall, while overseeing various aspects of the company. He also has orchestrated the company’s earned media across the finance stores: Accury®, Billry®, Budgetry®, Debtry®, Cashry®, Creditry®, Loanry®, Taxry® and Wealthry®. This includes over 1200 blogs, 400 videos, thousands of social post and publications that have been featured across the web.