There are different types of personal loans. Your credit score and your debt to income ratio will be a factor in which type of personal loan you are able to obtain. Another factor which will determine which type of personal loan you obtain is why you are wanting the loan.
UNSECURED PERSONAL LOAN
An unsecured personal loan is a loan made without any collateral. This type of loan is hard to get if you are asking for a big amount to borrow. If your debt is high compared to your income or your credit score is low will make it harder to get this type of loan.
If you are able to obtain an unsecured personal loan, you will usually have one to seven years to repay it. The interest rate on this type of loan typically ranges from 5% to 36%, according to Nerd Wallet.
Approval rate, the interest rate, and the amount of time to repay an unsecured loan is based on your credit score. Banks give out this type of loan. There are also places online who do unsecured loans.
SECURED PERSONAL LOANS
A secured personal loan is when the loan is given when there is collateral. The collateral would have to be worth enough to repay the loan if you default on the payments. Some examples of collateral you would be able to use are: your house, your car, or your bank accounts.
Many banks, credit unions, and online sites offer secured personal loans. The approval rate for this type of loan is better because you would have collateral to repay the loan if you were not able to. The bank, credit union, or online site where you obtained the loan would be able to legally seize the property you put up as collateral if you defaulted on the loan.
The interest rate for secured loans are typically lower than unsecured loans. This type of loan is less risky than an unsecured loan because of the collateral offered by you.
FIXED RATE PERSONAL LOANS
Another type of personal loan is one with a fixed rate. A fixed rate loan is a loan where the interest rate and monthly payment amount stay the same for the life of the loan. This type of loan makes it easier to budget since the monthly payment amount never changes.
A fixed rate personal loan is a good type of loan to have if you are on a fixed income or your work hours are not the same every week. This type of loan you would not have to worry about whether or not you would have enough money to pay during a certain month.
VARIABLE RATE PERSONAL LOANS
A variable rate personal loan is a loan where the interest rates and your monthly payment amount can fluctuate. The rate is tied to a benchmark rate set by banks. Depending on how the economy is doing at a particular time will decide on what the interest rate is at that given time. The interest rate on the loan and the monthly payment amount you would pay would rise and fall depending on the benchmark rate decided by the banks.
A benefit of a variable rate personal loan is the annual percentage rate could be lower than a fixed rate personal loan. If your loan takes a long time to repay, then a variable rate loan would not be a good idea to try to obtain. A variable rate loan would be alright if the life of the loan is short term, like less than a year.
DEBT CONSOLODATION LOANS
A debt consolidation loan is where you would combine several debts into one single loan. This is a good idea to do if you have several credit cards you want to pay off and get rid of. It is also a good idea to do if you have several things in collections you want to pay off.
This type of loan usually will have a lower interest rate than all of the debts staying separate. By combining your debt into one monthly payment could help you save money on what you would have paid in interest.
CO-SIGN PERSONAL LOANS
A co-sign personal loan is usually for a person with little to no credit history or with a bad credit score. This type of loan is where you would need to have someone sign the loan with you. If you end up defaulting on the loan then the person who co-signed would end up paying your loan for you. It is alright to get this type of loan is you absolutely need something. Depending on your credit history you may or may not be able to find a co-signer. If your credit score is low, and the loan is payed on time, a co-signer on a loan could help improve your credit score.
OTHER TYPES OF PERSONAL LOANS
There are other types of loans you could get without going online or through a bank or credit union. These other types of loans could be considered to be a personal loan. The other types are cash advance, credit card cash advance, and pawn stores.
At a cash advance place you typically would need a checking account or a type of bank account. The cash advance place would need your bank account information to be able to get your loan amount back if you do not go in to the place to pay on it. It is like a personal loan because you will need to repay it.
If you have a credit card you can get cash advances on it. Many credit cards charge a higher interest rate on the cash advances made against your credit card, but not always. These types of cash advances will need to be payed back and will be reported to credit bureau’s. Getting a cash advance against your credit card can improve or hurt your credit score depending on if your pay it back or not.
Another place to get money is a pawn store. At a pawn store you would bring in something of value, like dvd’s or a gaming system, to get money. The pawn store will give you time to pay back the money you got from them. If you do not pay them back then the property you brought to them is theirs to keep and sell.