According to a survey, a total of 131 million Americans reported having taken out a personal loan at some point in their lives.
Personal loans are growing in popularity as more people seek flexible payment options. What’s nice about them is the fact that they’re unsecured, meaning even people with bad credit can qualify for them.
The downside to them is that they often come with high-interest rates.
If you want to learn more about personal loans and which one might be right for you, read on. We’re going to give you a breakdown of the main types of personal loans.
Unsecured Personal Loans
These loans are given based on the creditworthiness of the borrower, so usually a steady source of income is necessary to be approved for these loans. They are not backed by any kind of collateral. Generally, these loans tend to have higher interest rates than secured loans, as the lender is taking on more risk by not having any assurance of their loans being repaid.
Some examples of unsecured personal loans include credit cards, payday loans, and peer-to-peer loans. With some due diligence, these loans can be a great way to get the financial assistance you need especially when you want to overcome being blacklisted.
Secured Personal Loans
These loans are backed by collateral, usually an asset such as a car or home. Secured personal loans typically have lower interest rates and greater loan amounts than unsecured personal loan options. This is because the personal loan lender is taking on less of a risk since they can repossess the collateral if the borrower defaults.
They are often used to purchase items such as automobiles or to consolidate multiple high-interest debts into one more manageable payment. However, it’s important to note that if you default on a secured personal loan, the lender can repossess the collateral so it’s important to make sure you can properly maintain the payments.
Fixed-Rate Loans
Fixed-rate loans are loans that have the same interest rate over the term of the loan. This means that throughout the loan period, you will be paying the same amount of interest as when you started the loan. They are often used for major purchases such as for a house or a car, or a large loan amount.
Since the interest rate does not vary, you will have a better idea of your monthly payments and loan costs, making it easier to budget. Fixed-rate loans can be good for individuals who live on a budget, don’t expect large changes in their finances, and need a predictable payment for their loan.
Debt Consolidation
It’s one type of personal loan that involves combining multiple debts into one single loan. This can help lower monthly payments, as the borrower can take out one loan to cover the debt instead of multiple loans. Interest rates can also be lowered because a single loan typically has a lower interest rate than several different loans.
When debt consolidating, it’s important for the borrower to be aware of the total debt amount, including any additional fees associated with the consolidation. It’s also important to understand the timeline for completing repayment, as missing payments can damage your credit score.
Exploring the Types of Personal Loans
Personal loans come in all shapes and sizes, from secured loans to payday loans. Knowing the differences between these types of personal loans can help you make a more informed decision when it comes to your finances. Do your research today to find the best loan for your needs.
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