What Are 4 Types Of Personal Loans?

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What are 4 Types of Personal Loans?

Are you planning on buying that dream car? Or are you itching to go on that dream trip of a lifetime? Does your home badly need a makeover? Or do you need money to cover some emergency expense? Do you want to consolidate your debts because paying out several different loans are just too time-consuming?
Whatever the reason is — personal loans can provide you the cash when you need it

Personal loans can be used for any reason — and at any amount. It can range anywhere between a couple of hundred dollars to tens of thousands. Lending companies are all over the place, either online or in a physical office, and each has varied criteria in granting a personal loan. Usually, these criteria are not too hard to reach. As long as you meet the standards, applying for a personal loan is basically like a walk in the park.

You should expect the lender to ask you what you need the money for. Don’t worry if your reason is flimsy — more often than not, the purpose for the funds has nothing much to do on the approval of your personal loan. It pretty much depends on how the lender checks out or evaluates your risk. Once you get the green light, the lenders don’t really restrict your spending. And in terms of the time table in repaying the loan, the lenders, in most cases, will give you between one to five years to pay.

If this is your first time to apply for a personal loan, it’s best to be knowledgeable of the four main types of personal loans. Don’t do things blindly. Information is crucial. After all, this is your hard-earned money we’re talking about. So how do you know a personal loan is for you?

Personal loans come in various forms and packages, and it is essential that you first know exactly what you need. Before you give it a go, ensure that this loan and its terms are what you need. Carefully check out which type is the best one to match your need and capability to pay.
So here are four different types of loan to consider:

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Table of Contents

Unsecured Personal Loans.

Perhaps this type of loan is the easiest to acquire as this does not need the support of collateral. An unsecured loan works like a deferred payment where you can pay back in monthly instalments. If you have good credit standing, acquiring the unsecured personal loan is a cinch. The risk is on the lender’s end and as mentioned earlier you don’t need to put up your house or your other assets as a collateral. The downside however is, the lenders will balance out this high risk by giving you a higher interest rate. This makes perfect sense since the lenders take the higher risk.

With regard to the loan amount, it will also depend on your credit score. Typically, lenders offer unsecured personal loans between a thousand dollars to as high as a $100,000 to customers with very good to excellent credit standing. The length of the loan usually ranges between one and five years or can even extend to six years in some cases.

Secured Personal Loans.

As you might have guessed, a secured personal loan is the opposite of the unsecured personal loan. Unlike the unsecured personal loan, this type of loan needs a collateral backup, such as a mortgage loan. Also the lender may be more flexible with regard to your credit requirements. The risk is on your end, but only if you neglect to pay your mortgage. 

In that case, the lender can seize hold of your house or your car or whatever asset you have put up as collateral. The risk is lower for the lender, therefore, they will give you a lower interest rate in a secured personal loan. Another upside is, you may also get a higher amount of loan depending on the value of the collateral that you put up. The big downside?

You risk losing your collateral — if you do not pay your loan at the right time.

Debt Consolodation Loans.

What does this mean? A debt consolidation loan integrates your different debts into one loan with only one monthly payment. You can use this debt management tool to pay off your medical bills, credit card bills and other personal loans.  By combining all the multiple interest rates and fees, this type of loan can help lessen your total monthly expenses into a single, affordable and inexpensive payment. 

To get a better grasp of this type of loan, it’s best to determine the costs. This can be done with the help of a personal loan calculator that you can find online. However, the common stumbling block that borrowers encounter after getting a loan plan is the lure of incurring more credit from credit cards or other personal loans. 

The debt consolidation loan is definitely a good option if you have a firm hand in controlling your debts and increasing your debts. If that’s settled and you have decided to get a debt consolidation loan, make sure you look for the best type of loan along with its rates and terms.

Co-signed Loans.

This fourth type of loan can either be a secured or unsecured personal loan. However, this requires more than one party to guarantee the return of the loaned amount. This works best for borrowers with no credit history or for someone with a good credit standing. 

In this case, the lender may require the borrower to have a co-signer — someone who will be bound to pay the loan should you default your debt. This will help improve your chances of getting the green light faster, as well as the possibility of having better terms for the loan.

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1 Comment
  1. Reply
    Kristofer Van Wagner November 6, 2021 at 1:41 am

    I am grateful that this post stressed that when looking to take out a personal loan, it is best that we are mindful and decisive of the purpose. That way, we will refrain from spending it elsewhere as well as be able to determine how much we actually need to loan. I will definitely keep this information in mind in the event I need to take out a personal loan for my kid’s education.

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