People take out personal loans for several different reasons. While many personal loans may appear similar, the differences between them determine whether or not taking out a certain loan will help or hurt you.
The best personal loans come in many forms. Before taking out one, you need to know the types of personal loans available. Doing so allows you to better understand your loan, how to pay it back, and why you need to pay it back.
Keep reading below for a comprehensive breakdown of the different types of personal loans.
Secured Personal Loans
A secured personal loan is a loan that uses your home or another asset as collateral for the banking institution or the lender. This type of loan can give you a lower interest rate and better terms than an unsecured loan, but it’s also riskier.
If you can’t make your payments, you could lose your home.
Unsecured Personal Loans
An unsecured personal loan is not backed by any collateral, so it is riskier for the lender or a financial institution. These loans are often used for debt consolidation or other purposes where the borrower has no collateral to offer.
Unsecured personal loans typically have higher interest rates than secured loans.
Fixed-Rate Personal Loans
A fixed-rate personal loan is a type of loan with a fixed interest rate for the life of the loan. This means that your monthly payments will not change over time.
Fixed-rate loans make sense if you desire regular monthly payments and are concerned about rising long-term loan interest rates. Budgeting is easier when you have a fixed rate because you don’t have to worry about your payments changing.
Salvage Title Loans
One type of personal loan you may be interested in is a salvage title loan. These loans are available to people who have a salvage title on their vehicle. The loan amount is based on the value of your vehicle, and you can use the loan for any purpose you need.
If you’re considering a salvage title loan, ensure you understand the terms and conditions. These loans can be challenging to repay, so ensure you’re comfortable with the terms before applying. Click here if you want to learn more about Online Title Loans.
Variable Rate Personal Loans
Variable rate personal loans may have lower initial interest rates than fixed-rate loans. Still, they can also increase over time, which may make them more expensive in the long run.
Although variable-rate loans are more difficult to budget, the interest rates are sometimes lower than fixed-rate loans. As a result, if you only need to borrow money for a short period, you should only consider this type of personal loan.
Peer-to-Peer Personal Loans
One popular option of a personal loan is peer-to-peer (P2P) loans. With a P2P loan, you borrow money from a pool of investors who each contribute funds to finance your loan.
P2P loans typically have lower interest rates and fees than traditional bank loans, and you may have more flexible repayment terms.
How to Choose from the Types of Personal Loans Available
There are many types of personal loans to choose from, so it’s important to compare your options and find the right one. You can get a personal loan from a bank, credit union, or online lender.
Each has its own set of terms and conditions, so be sure to read the fine print before you apply. Once you’ve found the right loan, shop for the best interest rate and terms.