There are many types of personal loans, including unsecured with fixed rates, secured and adjustable-rate personal loans.
That said, factors such as credit score and timeframe will determine the type of loan you qualify for.
This guide will walk you through the different types of loans available and briefly how each of them works.
1. Unsecured Loans
An unsecured loan is an installment loan paid back over an agreed period. And because it has no collateral backing, you can easily acquire this type of loan with a good credit score. However, the lender will initiate a lawsuit to collect the debt if you default on the loan.
Personal loan lenders, such as Viva Payday Loans, offer credits based on the borrower’s creditworthiness. Individuals with excellent scores can borrow up to $100,000, but the loan amounts often range between $1,000 and $50,000.
Installment plans can go anywhere between one to six years.
2. Secured Loans
A secured loan is one of the cheapest personal loans available and the best for individuals with poor credit.
These loans are backed with collateral, such as cars, assets, or savings accounts. If you default payment for this type of loan, your lender has the right to take hold of the asset (used as collateral) to make up for the debt.
Secured loans are safe, and for that, personal loan lenders find it necessary to charge lower interest rates while making their credit score requirements more flexible.
3. Debt Consolidation Loans
Sure, you can borrow a loan and consolidate the money to pay off other loans.
Debt consolidation loans are generally unsecured personal loans and can pay off credit cards, lowering your financial burden.
By paying lower interest rates, you’ll be saving money and clearing your debts sooner. However, this will affect your credit score because you’ll be committing to paying off other debts instead. Before taking out a debt consolidation loan for bad credit, you should know exactly what you are getting yourself into.
4. Personal Line Of Credit
If the other types of loans don’t seem to satisfy your needs, apply for a personal line of credit.
This loan revolves around credit and credit cards, and borrowers are granted access to a line of credit up to a specific loan amount. Meanwhile, interest is charged based on the remaining balance.
A personal line of credit is often put in place to make up for unplanned expenses or income fluctuations. Some private loan lenders will offer a secured line of credit backed by collateral or even let you set up one that’s connected to your savings account.
To apply for a personal line of credit, you’ll need two things:
- Good credit history
- An AI credit score
5. Adjustable-Rate Personal Loans
Adjustable-rate personal loans are often scarce compared to fixed-rate personal loans. Their interest rates are subject to change but start relatively low. However, depending on the market condition, the interest rate may increase, affecting the monthly payment.
While caps have been put in place to prevent borrowers from paying more than a specific interest, you stand the chance of getting stuck with higher rates and uncertain monthly payments.
Unless you’re unable to pay off loans quickly, refrain from taking out an adjustable-rate personal loan.
6. Credit Builder Loans
A credit builder loan aims to build your credit or help you acquire credit for the first time. Credit-builder loans can be secure or unsecured depending on the lender’s terms and conditions.
More often, a savings account is used as collateral.
The best part with credit builder loans is that their balances are pretty low and can be paid off in a couple of months. Upon making timely payments, your credit score is enhanced. This also opens ways for other financial opportunities, including savings.
But that doesn’t mean you should stop paying your loan. Default to pay may make you vulnerable to losing your asset, especially if the loan is secured. You don’t want to fall victim either, so pay your balances on time!
7. Vacation Loans
Vacation loans are generally unsecured.
Occasionally, you can qualify for these types of loans to go and tour the world. However, taking out a loan to fund a trip can be your lifetime nightmare.
Draft a budget and know how much you need to save each month for your trip.
Instead of spending years paying for memories that have already faded, plan ahead of time and consolidate money for your vacation. That way, you don’t have to worry about monthly payments.
8. Wedding Loans
Wedding loans are similar to vacation loans and are generally unsecured.
Weddings can be costly, and raising the money to fund the event can be downright frustrating. However, taking out a loan to cater for the wedding expenses isn’t the best option.
While loans can make the process easier, paying off the debt can be a pain in the neck.
However, you can be offered a loan at a lower interest rate with a good credit score. A general rule of thumb is to plan, save, and only borrow what you can afford to repay.
Final Thoughts
Personal loans can be a lifesaver for whichever emergency you have at hand. However, you need to be cautious anytime you take a loan. Be sure to borrow what you can afford to pay off and do it as quickly as possible to cut down interest rates.
