Are you wondering what the different types of personal loans are? Not sure what types of loans you can turn to in a pinch?
If you have an emergency or a big purchase that you need to make, it can sometimes be a good idea to take out a personal loan. There are many types of personal loans out there and each can help in certain situations.
In this guide, we’ll tell you about the different types of personal loans that exist today.
- Unsecured Loans
An unsecured loan is a type of personal loan that won’t require you to put down collateral. Because of this, however, these loans can be a bit riskier for lenders. They may have a higher annual percentage rate (APR) as a result.
Approval for these types of loans will depend on several factors but will be largely based on your credit score. You’ll likely want to make sure you have a decent credit score when applying for one of these loans.
- Secured Loans
Secured loans are a type of personal loan in which you’ll need to put down collateral. Collateral will include something of value such as a car or a home, for example.
Mortgage loans and car loans are both a type of secured personal loans. These types of loans will be less risky for lenders than unsecured loans, so the APR may not be as high on them.
Keep in mind, however, that if you default on your loan, you may lose any collateral that you put up. Make sure that you can pay a secured loan back if you decide to get one.
In addition to standard mortgage loans, you may also want to consider hard money loans. While a mortgage loan is typically used for a personal home or property, these loans are typically used for commercial property and real estate investments. Be sure to check out DFW Hard Money if you’re interested in getting a hard money loan.
- Revolving Credit
Revolving credit allows you to borrow money up to a certain amount and can be just as useful as other types of personal loans.
With a revolving line of credit, you’ll be able to get access to money that you can borrow as needed. Like with a credit card, you’ll need to pay a minimum payment each month.
Getting revolving credit can be done in several ways. A revolving line of credit may be a personal line of credit, credit on credit cards, or a home equity line of credit (HELOC).
- Fixed-Rate Loans
Fixed-rate loans are another loan option that you can use to pay for big purchases and emergencies. These installment loans will allow you to borrow a specific amount of money and the rate and monthly payments will be steady for the entirety of the loan’s life.
With fixed-rate loans, you’ll have consistent installment payments to handle each month. This can make these loans easier to stay on top of, to pay back, and to budget for than other types of loans that are out there.
- Variable-Rate Loans
Variable-rate loans are similar to fixed-rate loans, but you’ll be paying a rate that is set by financial institutions. As the rate changes, the rate on your loan will also change accordingly.
While this inconsistency can make these loans trickier to stay on top of, these variable rate loans will often have lower rates than fixed-rate loans will. These loans are often good for short-term purposes since their rates likely won’t change too much in the time that you have them.
- Cosigned Loans
Another type of loan that you should be aware of are cosigned loans. Cosigned loans are loans in which a borrower signs for a loan with someone else, known as a co-signer. The co-signer will have to repay the loan if the borrower fails to do so themselves.
Many people choose to use a co-signer if they have bad credit histories or may not qualify for a loan otherwise. Having a co-signer makes things less risky for a lender and gives a borrower an option for borrowing money that they may not be able to borrow otherwise.
- Debt Consolidation Loans
A debt consolidation loan is a type of loan that is meant to allow a borrower to pay back other debts that they already have. Using a debt consolidation loan can help to simplify things for a borrower and will make it so that they only have one fixed payment to make each month.
A debt consolidation loan may also allow a borrower to pay less money overall since the loan will likely have a lower APR than the other types of loans that the borrower already has.
- Payday Loans
A payday loan is a type of fast personal loan that is very short-term and carries high-interest rates. These loans are generally considered to be very risky for borrowers because they will be costly and will need to be paid back quickly.
Borrowers who may not qualify for other types of loans may turn to a payday loan to get emergency funds. These loans will need to be paid back on a borrower’s next payday and may only be a few hundred dollars total.
Understanding the Different Types of Personal Loans That You Can Choose From
If you need money for an emergency or a big purchase, it may make sense to get a personal loan. Be sure that you understand the different types of personal loans and how they can help. Always choose a loan to take out wisely and ensure that you’ll be able to stay on top of all payments that will be necessary.
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