What Are the Different Types of Personal Loans That Exist Today?

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Do you need a personal loan? Are you wondering what the best personal loan would be for your situation?

The average annual percentage rate on an unsecured personal loan in the US is just over 9 percent. That rate can change depending on your credit score, plus your income and outstanding debt.

Not all personal loans are the same. Here are some of the many different types of personal loans that exist today.

Unsecured Personal Loans

This type of loan doesn’t take assets as collateral or backup in case you can’t make your loan payments. The interest rate is usually a bit higher because there is more risk, and your creditworthiness is the main reason you qualify for the loan.

Secured Personal Loan

To obtain a secured personal loan, you will need to offer a personal asset as collateral. Your car, or savings, or another valuable asset are typical items used as collateral. If you don’t pay the loan, the lender can take the asset. Interest rates are usually a bit lower than an unsecured loan. 

Banks offer secured personal loans as well as private lenders. Lenders consider your creditworthiness, and it takes a bit of time to make the application and receive the money.

Hard Money Loans

Hard money loans use a hard asset as security, and the lender doesn’t rely on the person’s creditworthiness. Hard assets are usually real estate, and if the borrower defaults, the title of the hard asset goes to the lender.

If you don’t have a strong credit history, a hard money loan is easier and quicker to obtain. It’s a short-term loan, unlike a mortgage, which is for a much longer term.

The fast turnaround causes higher interest rates charged on this type of loan. They’re useful when flipping properties or other situations when you need money quickly for a short period.

Debt Consolidation Loans 

When you find you have multiple debts, you can have them consolidated into a single personal loan. It’s a money management technique to roll credit card debt into a single loan with a lower interest rate than the credit card was charging.

A Loan With a Cosigner

When you don’t qualify for a loan due to poor or non-existent credit history, a bank may allow another person to cosign your loan, making them responsible if you default on your payments.

A Payday Emergency Funds Loan

A payday loan is a way to get emergency cash to tide you over until your next payday. This type of loan is a higher-risk loan, so the interest rate is also high. When someone takes out a payday loan, they’re in a bit of financial trouble and might not be able to pay it on the agreed date.

Choose From the Many Types of Personal Loans 

Understanding the many types of personal loans available can help you decide which one is the best personal loan for you. It can also help you find a way to get the assistance you need without going deeper into debt.

Did you find this article helpful? If so, be sure to use the simple search feature to find out more about personal loans or check out our Business Online section.

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