The types of personal loans available

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The types of personal loans available
The most popular kinds that personal loans include unsecured, debt consolidation and co-signed loans.


Updated on January 21st, 2022

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Most personal loans are unsecure and have fixed rates and payment. There are various types of personal loans, including secured and co-signed loans. The type of loan that works best for you is determined by a variety of the factors that affect your credit score as well as the length of time it will take you to repay the loan.
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Unsecured personal loans

The majority of personal loans are unsecured, meaning they're not backed by collateral such as your home or car. They are therefore more risky to lenders. This can cause them to charge a greater annual interest rate, also known as APR. The APR represents your entire cost for borrowing. It includes the interest rate and any fees.
If you're approved, and the APR you'll receive are mainly based on your credit score and income, as well as other debts. The rates typically vary from 6% to 36%, while repayment terms vary between two and seven years.
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Personal loans

Secured loans are backed by collateral, which the lender can seize if you don't pay the loan. Examples of other secured loans include mortgages (secured by your home) or automobile loans (secured by your vehicle title).
Certain credit unions and banks permit borrowers to pay for the loan by using personal savings or other assets. The online lenders usually let you borrow against your vehicle. Secured loan rates tend to be lower than unsecure loan rates since they are considered less risky for lenders.
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Fixed-rate loans

The majority of personal loans have fixed rates. This means that your rate and monthly payments (also called installments) remain the same throughout the life of the loan.
Fixed-rate loans are ideal if you want consistent payments each month and if you're concerned about the rise in rates on long-term loans. Fixed rates make it easier to budget as there's no need to worry about your monthly payments fluctuating.
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Variable-rate loans

Interest rates on variable-rate loans are linked to a benchmark rate that is set by banks. In response to how the benchmark rate changes, the rate on your loan -and also your monthly payments and total interest costs -- can fluctuate between a rise and a fall.
Variable-rate loans can have lower APRs than fixed-rate loans. They also may have the possibility of a cap on the amount that your rate may alter over a particular time and throughout the term that the loan.
Though not as widely available as fixed-rate loans, a variable-rate loan is a good option when it has a shorter time-frame for repayment, since rates could rise, but are unlikely to surge in the short-term.
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Debt consolidation loans

An debt consolidation loan will combine multiple debts into a single loan, leaving you with one monthly payment. is a good idea when you are in a position where the loan is a lesser APR than the rates on the debts you already have, meaning you can save on interest.
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Co-signed and joint loans

Co-signed and joint loans are best for borrowers who aren't able to get an individual loan themselves, or who prefer a lower cost.
A commitment to repay the loan in the event that the borrower fails to, but doesn't possess access to loan funds. A co-borrower is still liable if the other borrower doesn't pay the loan, however they are able to access the funds.
The addition of a co-signer who has a strong credit history will increase your chances of being approved and could result in a lower interest rate and better conditions on the loan.
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Credit line for personal use

The personal credit line can be described as revolving credit, and is more akin to the credit card of the personal loan. Rather than getting the cash in one lump the borrower is granted access to credit lines from which you can draw on a per-need basis. You only pay interest on what you borrow.
A personal line of credit is the best option when you need to finance long-term expenses or emergencies rather than a one-time expense.
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Buy now, pay later loan

" " loans let you divide an online purchase by dividing it into smaller parts. After you have completed your purchase, you can create an account using the BNPL app, pay for part of the purchase and let the app charge you the rest of the balance, usually in biweekly installments.
BNPL is best suited for urgent, one-time purchases that you wouldn't otherwise be able to make payments with cash. These companies don't require good credit scores to be able to approve you instead, BNPL apps review your bank account transactions and can perform a credit check.
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The types of loans to avoid

Even the smallest loans with high APRs and short repayment terms can be difficult to pay back on time. If you fail to repay the small loan and you don't pay it back, you may be forced to borrow again to get help, which could lead to a series of loans.
These loans should be considered a last resort in the event of an emergency.
Cash advance app
Let you to borrow small amounts -- often around $200 or less- from your next paycheck. In exchange, you will pay an annual subscription fee or optional tips, which aren't much, but they can increase.
Rather than using credit information to be able to approve you, many applications need access to the bank accounts of your customers as well as the history of transactions to determine how you're able to borrow. The apps will take the money you've borrowed from your account in two weeks or on your next pay day.
Advance on credit card
Credit card to access an ATM or bank. It's a convenient however costly method to get cash.
The interest rates are generally higher than the rates for purchases. In addition, you'll have to pay cash advance charges, that are usually an amount in dollars (around $5-10) or as high as 5% of the amount borrowed.
Pawnshop loan
It is a personal loan. You borrow against an asset such as electronics or jewelry, that you give to the Pawnshop. If you fail to pay back the loan the pawnshop has the option to sell your asset.
Rates for these loans are extremely high and can be around 200% APR. They're usually less than the rates for payday loans, and you aren't at risk of damaging your credit or being harassed by debt collectors if you don't repay the loan and you lose the property.
Payday loans
A is a form of unsecured loan however, it is usually repaid on next payday of the borrower rather than in installments over time. The loan amounts are typically a few hundred dollars or less.
Payday loans are short-term, high-interest -- and risky loans. Many borrowers end up taking out additional loans when they're unable to pay the first, trapping them in a debt cycle. This means that interest rates rise quickly and loans with APRs that are in the triple digits are not uncommon.
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The author's bio: Steve Nicastro is a former NerdWallet expert on personal loans and small business. His work has been featured on The New York Times and MarketWatch.







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