The Different Types of Personal Loans Explained: A Helpful Guide

Tuesday, March 31st 2020, 9:25 am
By: News On 6

Personal Loan

Did you know that one of the most common reasons Americans apply for personal loans is to merge debt?

Are you wondering what the different types of personal loans are? Not to worry! In this guide, we’ll go over the loan types you should know.

Want to learn more? Keep reading to find out.

Unsecured Loan

An unsecured loan will get issued to a borrower if they have good credit.
This type of loan doesn’t get backed by collateral.

The loan amount you can receive will depend on your credit. A lender might offer loans between $1,000-50,000. If you have excellent credit, they might even offer up to $100,000.

Since a lender is taking a risk with an unsecured loan, they may charge higher interest.

An unsecured loan is an installment loan that gets paid back with payments made each month. If you have good credit and want to pay regular payments each month, get this kind of loan.

Secured Loans

This type of loan is an installment loan that gets backed by collateral like a savings account or car. If you don’t pay back your loan, the lender can seize your asset to cover the balance.

These loans are less risky for lenders. Lenders offer a lower interest rate, making them some of the cheapest personal loans. Some lenders will even work with someone who has poor credit.

Cosigned Loans

A cosigned loan is either a secured or unsecured loan. If you have poor credit, the lender could ask you to have a cosigner.

A cosigner will assume and pay the loan if you end up defaulting on payments. By having a cosigner, you can increase your chances of getting approved.

Consider this type of loan with care and understand the risks involved. If you miss a payment, you could impact your cosigner’s credit score. You don’t want to damage a close relationship this way.

Talk to your cosigner beforehand in case you can’t make a payment. Ask if they could cover that payment. You can make a plan to pay your cosigner back.

Personal Line of Credit

A line of credit is a sum of money that a credit union or bank has lent you. Find out if you qualify for a personal line of credit.

This loan is like a credit card. The borrower can use the amount of money as they need. Interest gets charged on the outstanding balance.

Your payment each month will depend on the amount you have withdrawn. The more you take out, the higher you pay every month.

Cover unplanned expenses with a personal line of credit. If you need help right away, learn more about getting a loan quickly.

Now You Know the Different Types of Personal Loans

We hope you found this guide on loan types helpful. After reading about these types of personal loans, decide which one works best for you.

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