In life, both expected and unexpected expenses can cause financial strain on households. When you don’t have enough to cover the costs of a vehicle, home, or bills, a personal loan can assist you, providing some quick cash when you need it the most.
Personal loan amounts differ depending on the lender as well as your credit history, so individuals with higher scores and better credit history receive higher loan amounts with lower interest. They can be repaid in monthly installments and loan durations typically range anywhere from one to five years.
There are multiple types of personal loans available, so it is important to distinguish between each option and learn the difference between them. Understanding each type of loan can help you make the best decision for your financial future. Let’s take a look at what you should know about different types of loans.
Secured personal loans are loans that require some form of collateral to be put down before the loan is provided. This collateral can be an item of value or a savings account, which will be commandeered if payments are not made.
Secured loans are a good choice for some individuals, as they typically have lower interest rates due to the lowered risk taken on by the lender. You may also receive a higher loan amount due to the collateral you have offered. However, you should keep up with loan repayments in order to maintain ownership of your collateral.
If you do not have collateral to put down or don’t want to put any collateral down, an unsecured personal loan may the right choice. Lenders of unsecured loans will rely more on your credit score when determining your eligibility to receive a loan. If you have good credit, you will receive a lower rate on your loan once it has been approved.
Individuals with bad credit may still be able to receive a personal loan from certain creditors and lenders. Credit lenders like LetMeBank offer the top 4 small loans for bad credit of 2020, so you can receive a personal loan without sky-high interest rates.
Debt Consolidation Loans
Individuals that have several debts to repay may consider consolidating their debt using a debt consolidation loan. Debt consolidation loans are an excellent choice for individuals with multiple credit accounts from different lenders that want to take control of their credit score.
These loans are usually unsecured and can be used to save money while paying off debts much faster than you would by paying each lender individually. Many lenders offer personal loans that can be used to consolidate debt and make it easy to raise your credit score and improve credit history.
Fixed & Variable-Rate Loans
A loan can either have a fixed rate or a variable rate of interest. Fixed interest rates tend to be ideal, because they remain the same for the entirety of your loan repayment period. Monthly payments will be the same from month to month, so you can budget more effectively with these loans.
Variable-rate loans can vary depending on the benchmark that is set by your lender. When the benchmark fluctuates, the interest rate you pay for your loan will fluctuate as well. This makes it more difficult for individuals to budget for monthly payments and can mean paying more than you expect, though you will have a lower APR and a cap to limit fluctuations.
Credit Builder Loans
Having little to no credit may seem good at first, but this actually makes it difficult for lenders to determine your dependability and risk factor, leading to application and credit denials – much like having bad credit. Credit builder loans are loans that have been designed to help individuals establish or rebuild their credit.
Credit builder loans are typically for small amounts and can be paid back quickly, allowing you to increase your credit score and improve credit history. If a credit builder loan is secured, missing payments can mean losing any collateral you have put down.
After assessing each loan type, you’ll be able to find and apply for the type of personal loan that best suits your needs and financial requirements. Even if you have bad credit, you can find a lender that will be willing to work with you and provide a personal loan. When borrowing, be sure to make payments on time to avoid damaging your credit history. Used wisely, a personal loan can be highly beneficial – even to individuals that have bad credit.