Nobody wants to be in a position where they have to rely on a loan to help them financially, but we all have to accept that we could end up in that position at some point.
Personal loans are one of the most common types of credit that people take out at some point in their lives and the reason is that personal loans have no specific purpose.
While mortgages, car loans, student loans, etc. have very specific purposes, personal loans can be used for almost anything… Almost.
But there are also many types of personal loans that you can get, and each type is better suited to an individual for different reasons. So, before you start your hunt for installment loans in Lexington, let’s take a look at the types of personal loans.
declare personal loans
Personal loans are a type of installment loan, which means you pay them back in installments. This loan is granted to you without you having to use the money for anything specific.
Some lenders will allow you to check their offers online without it affecting your credit score, but others will not, and when you apply you must be aware that you will be required to disclose your personal and financial information and agree that they take out hard loans .
This can negatively affect your credit score, but only to a very small extent and temporarily.
If you qualify, you will receive different offers and be able to repay in different periods with different interest rates and payment rates.
Interest rates on these loans are usually fixed and are often set in monthly payments for the life of the loan. You may also have to pay an Admin or Origin fee that you don’t get back.
Should You Avoid Personal Loans?
There are three specific types of personal loans that we recommend staying away from. These are payday loans, title loans and pawn shops.
Payday loans are short term and come with huge fees. They’re not always bad, especially if you’re wise with your money, but they tend to leave borrowers in a debt cycle that often results in them taking on new loans to pay off old ones.
Title loans are easy, but you must use your car as collateral. Repayment periods can be short and interest rates high, which can make you worse off in the long run, especially if you can’t afford it and end up facing a lien.
Pawn shops can be a good alternative to payday loans, but you risk losing your items to the pawn shop and you often have to pay a fee if you want to extend the repayment period.
What types of personal loans are there?
So knowing all of the above, what are the different types of personal loans that you can get?
Here are the main types of personal loans you are likely to come across.
Unsecured loans are loans that are not backed by collateral to protect the lender. Instead, they usually have higher costs built into their interest rates, which means they can land you with a higher APR.
However, by taking out an unsecured loan, you are not jeopardizing any of your possessions.
You’ll still be assessed on your credit score, income, and debt, and you could get a rate of 6% to 36%.
Secured loans are the loans that are safe for a lender because you are required to post collateral. This can be your home, your car or other worldly possessions. This is often the case with mortgages and car loans.
However, if you default on the loan, your home/car can be repossessed.
The majority of personal loans are fixed, which means the interest rate and the monthly payments you make to pay back the loan remain the same for the life of the loan.
These fixed rate loans are great for consistency in your monthly payments on long-term loans.
Co-signed loans are best if you have bad credit and cannot qualify on your own.
Someone else will co-sign the loan, but they won’t have access to your funds. However, that person will still get into trouble if you don’t make the payments.
A person who is a co-signer will usually have a large credit.
Variable rate loans are rated by banks, and as it rises and falls, your loan will do the same. You’ll usually get a lower APR for that, and there’s often a cap on how much it can change over time.
They aren’t available en masse, but these are usually found on short-term loans.
Personal loans for debt consolidation are actually a popular type of personal loan. With this type of personal loan, all the loans that you are currently paying off are combined into one large sum.
This is ideal as it reduces how much you have to pay. As?
Well if you have multiple loans with different interest rates then it will cost you more in the long run, if you consolidate your loans into a personal debt consolidation loan you only have the one interest rate to deal with.
line of credit
Personal lines of credit are revolving credit and are more like a credit card than a personal loan. Instead of a one-off sum of money, you get access to a line of credit that you can borrow as needed.
With this, you only pay interest on the money you borrow
It works best when you need to borrow money for ongoing charges or when you have an emergency.
This article does not necessarily represent the opinion of the editors or management of EconoTimes