Types of Personal Loans: What You Need to Know

Hold onto your hats, folks, because we’re about to talk about a topic that strikes fear into the hearts of many: personal loans. Okay, maybe it’s not that dramatic, but let’s be honest, getting a loan can be daunting.

There are so many types of personal loans out there, and it can be overwhelming to figure out which one is the best fit for you. But fear not! We’re here to break it down and make it simple.

So, take a deep breath, and let’s dive into the world of personal loans.

Unsecured Personal Loans

One of the most common types of personal loans is an unsecured personal loan. This type of loan doesn’t require you to put up any collateral, like your car or house.

Instead, the lender looks at your credit history and income to determine your eligibility for the loan. If you have good credit, you may be able to get a loan with a lower interest rate. But if you have bad credit, you may end up paying a higher interest rate or not being approved for the loan.

Secured Personal Loans

If you don’t have good credit, you may still be able to get a personal loan by applying for a secured personal loan. With this type of loan, you put up collateral (like your car or house) to secure the loan.

Because the lender has something to take if you don’t make your payments, they’re more likely to approve your loan even if you have bad credit. However, keep in mind that if you miss payments, you could lose your collateral.

Payday Loans

If you need emergency money and don’t have good credit, you may be tempted to get a payday loan. These loans are designed to be a short-term solution for people who need cash quickly.

You can often apply for a loan like this without a credit check, but the interest rates can be incredibly high. If you’re not careful, you could end up in a cycle of debt where you keep taking out new loans to pay off the old ones.

Credit Card Cash Advance

Another option for emergency money is a credit card cash advance. If you have a credit card with available credit, you can use it to get cash. Remember, though, that the interest rates for cash advances are typically higher than those for regular purchases. 

Additionally, you may be charged a cash advance fee. This can make the loan more expensive.

Small Loans

If you need to borrow a small amount of money, you may want to consider a small loan. These loans are typically for less than $5,000 and are designed to be paid back quickly (usually within a year).

While the interest rates for small loans can be higher than other types of loans, they may be a good option if you only need a small amount of money and can pay it back quickly. Just be sure to find out the penalty for a missing payment on a small loan, as it can be more severe than with larger loans.

Common Types of Personal Loans Explained

There are a few common types of personal loans to choose from. The best loan for you will depend on your credit history, income, and the amount of money you need to borrow. With the right loan and responsible borrowing, you can get the emergency money you need without falling into a cycle of debt.

For more articles, check out the navigation menu on this page.

Interesting Related Article: “Common Reasons Loans Are Rejected