There are currently 21.1 million outstanding personal loans in the United States today. Personal loans are a great way to get money to fund projects or deal with emergency situations.
If you are thinking about applying for a personal loan, then you need to do your research. Let us help you out with this informative guide to the different types of personal loans.
What Is a Personal Loan?
A personal loan is a lump sum of money that you borrow from a lender and pay back later in fixed monthly installments. People apply for personal loans for a variety of reasons such as consolidating debt, completing home improvement projects, and funding emergency situations.
To apply for a loan, you will need to choose a lender and go from there. Many lenders require you to apply in person, while others, such as fastloandirect.com, allow you to complete the entire process online. Choose the option that works best for your needs.
The Different Types of Personal Loans
The first step to applying for a personal loan is to decide which type of loan you need. Here are the most popular types of personal loans.
Secured loans are backed by collateral and require you to offer something to the lender that they can seize if you don’t make your payments. Some of the most common assets put up in return for a secured loan are personal savings, houses, and car titles.
This is a popular option among people with a low credit score, as it is less risky for the lender. They have the right to seize something of yours, which will give you a greater incentive to pay off your loan.
If you have a great credit score, then you may want to consider an unsecured loan. An unsecured loan does not require you to put up any sort of collateral and is a great option for those who need cash fast.
Because this is a riskier option for lenders, unsecured loans typically come with a higher interest rate, so make sure you take this into consideration before applying. This can make your payments higher than you might expect.
If you don’t want to worry about changing interest rates, then a fixed-rate loan could be a great option for you. Fixed-rate loans are exactly like they sound. They come with an interest rate that does not change over the repayment term.
This is a wonderful option for those who want to plan out their budget each month, as the price of their loan repayments will never change.
Variable-rate loans are the direct opposite of fixed-rate loans. Variable-rate loans come with an interest rate that may rise or fall over your repayment period. These interest rates are typically tied to a benchmark rate set by the lender.
These loans usually come with a lower overall interest rate and may have a limit as to how much your rate can fluctuate from month to month.
Variable-rate loans are popular choices among those who are looking at a short repayment term. The interest rate is usually lower than that of a fixed-rate loan and are unlikely to raise too much over a short period of time.
Debt Consolidation Loans
If you are becoming overwhelmed by debt, then a debt consolidation loan may be something to consider. A debt consolidation loan takes all of your outstanding debt and combines it into one big loan. This allows you to pay off your debt faster by saving on all of the different interest rates.
If you are interested in debt consolidation for credit card loans, then check with your credit card company. Many companies offer zero-percent or low-interest balance transfers that allow you to consolidate your credit card debt into one single card.
Personal Line of Credit
A personal line of credit functions more like a credit card than a traditional loan. Rather than getting all of the money upfront, you get access to a line of credit that you can borrow from as you need it. You typically only pay interest on the money you borrow.
This is a great option for people who have ongoing expenses rather than a one-time emergency situation. This allows you to have access to cash any time you need it, providing you with a financial safety net to fall back on.
Buy Now, Pay Later Loans
Buy now, pay later loans are typically used when making online purchases. This allows you to pay for part of a product at the time of purchase, and then pay for the rest in monthly payments.
These loans typically require you to sign up for an online app that will then either approve you or deny you for the loan. These apps will review your credit score as well as your bank activity to determine whether or not they believe you are able to pay back the loan.
Co-Signed and Joint Loans
If you can’t get a loan on your own, then you might want to consider a co-signed or joint loan. A co-signed loan is exactly as it sounds and allows someone to co-sign on your loan. This co-signer should have good credit and needs to be willing to make the monthly payments if you do not.
If you fail to make your payments, it is your co-signers responsibility to pay off the loan. In a co-signed loan, your co-signer does not have access to the funds.
In a joint loan, both you and your co-signer can access the funds. This is great for couples or family members who are both in need of financial assistance.
Choose the Best Type of Loan for Your Needs
When it comes to the types of personal loans, it is important to choose one that fits your specific needs. Take the time to assess your financial situation and find a loan that will best support you.
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