Personal loans have become an integral part of many people’s financial lives, providing a means to address immediate needs and expenses. Did you know that the average person can have over $18,000 in personal loan balance? This highlights the widespread reliance on personal loans as a source of funding. Whether it’s for unexpected emergencies, pursuing higher education, making home improvements, or consolidating existing debts, personal loans offer a solution.
However, it is essential to navigate the realm of personal loans with caution and knowledge to ensure you choose the right type of loan and understand its implications. In this comprehensive guide, we will explore the different types of personal loans, their features, and the factors to consider when deciding which loan is best suited for your needs. By the end, you’ll be equipped with the necessary information to make informed decisions and manage your personal loans effectively.
One of the most common types of personal loans out there is the unsecured loan. Here, you have no collateral against your personal loan.
That means that a lender will likely consider you a more risky investment compared to people that elect to take other types of personal loans. We will get to those later.
As a result, you could get charged a higher interest rate because the lender is taking more risk. If that does not happen, it likely means that your credit report and payment history will come into play. That can help a lender determine if you are reliable or not when it comes to paying your bills.
Another thing that can help you here is having a higher income. That can also give a lender more faith in you paying back your loan as fast as possible because you will likely have more money to dedicate towards it.
As an alternative to the above, you do have the option to go with a secured personal loan. The catch here is that you have to put up collateral that is at least equivalent to what you are looking to borrow.
An example can be if you are looking to borrow $25,000. You may not get approved for an unsecured loan or you may even want a better interest rate. So, you could be willing to put up something of value to you to make up for it.
Let’s say that you put up your car as collateral to secure this loan. In this situation, you need to make sure you keep up with your payments to the lender. Failure to do so after a certain agreed upon period means that the lender has the right to seize your car as payment.
Let’s say you are someone that has multiple forms of debt. You could be having a hard time paying all of that debt off. The payments could be anything from an unsecured loan to credit card debt, an auto loan payment, and more.
So, what can you do in that situation? You do have one option in your back pocket called debt consolidation.
With this option, instead of having various interest rates and smaller payments to pay each of your lenders, all of your debt gets rolled into one account.
That means that you now have one bigger bill to pay instead of several smaller ones. The number can be intimidating, but there can be one good thing about going this route.
Depending on your original debt, this option could allow you to negotiate a lower interest rate on your overall debt. Instead of paying an insane interest rate for credit card payments, that debt is neutralized by going into one account with the rest of your debt.
If you are someone that does not have the best credit history, a lender may tell you that your odds of getting approved for a loan are better with a co-signor. Here, the goal is to get a better rate by partnering with someone with good credit history. This also provides more security to lenders in case you fail to pay the loan back yourself.
The catch is that it is important that you have a good relationship with someone that you ask to be a co-signor. It is important because they have to have a lot of trust and love for you to join you on a loan.
If you fail to pay the loan back yourself, you could end up damaging both of your credit scores and you could place a big financial burden on your co-signor.
Credit Card Cash Advance
Of all of the types of loans mentioned so far, this is the personal loan that you want to avoid the most. The main pro of this one is that you can get access to a certain amount of money via an ATM withdrawal immediately with your credit card.
However, the catch is that you are going to be paying very high fees compared to the other options. First of all, there is a cash advance fee that can be as high as $10 per cash advance.
Second, you get charged interest on this cash advance immediately compared to other options. On top of that, it is typically a higher interest rate than a standard personal loan.
So, this option should only be taken if you have no other access to a bank or if you need money immediately.
Discover More Types of Personal Loans
These are just a few types of personal loans that you can take if you need one. You can go the common route and take an unsecured loan. In an emergency, you might go with a cash advance.
If you want to improve your odds of approval, you may go with a secured loan or try to find a co-signor. Do you want to see even more personal loan options? Check out our articles on Loans.