Everything is not certain in your life. Sometimes, your expenses cross your income and savings. Here you may need to take debt from a friend or loan from a lender. In certain cases, you can opt for instant money from credit cards or a line of credit.
However, this option is not suitable when you need a specific amount at once. At that time, a personal loan is a good option. There are different kinds of personal loans, such as fixed-rate personal loans, variable rate personal loans, self employed loans, etc.
In this article, you will learn about various types of personal loans and how you can apply for them.
Types of Personal Loans
Unsecured loans, and fixed-rate loans are the most common types of personal loans. However, there are also other types of personal loans that you can apply for. So, let’s explore them.
1. Unsecured Personal Loans
With a credit score of 670 to 739, you can avail of an unsecured personal loan. This is a kind of personal loan where you don’t have any physical assets to back your loan. So, if you are not able to pay the loans, the lender cannot take away any property. Typically, this type of loan is backed by your credit score and a co-signer.
However, it can harm your credit score because the lender’s money is at risk if you are not able to repay the loan. As there is no collateral for such types of loans, it can only negatively impact your credit score, which is not a good thing at all.
2. Secured Personal Loans
Unlike unsecured personal loans, you need collateral such as your vehicle, certificate of deposits, or savings account for secured personal loans. That’s why these types of loans charge fewer interest rates than unsecured personal loans.
The reason is simple: the lender can take your collateral if you fail to repay the loan. So, it’s less risky for the lender and, comparatively, has a low-interest rate than unsecured loans.
3. Fixed-rate Personal Loans
This is the simplest type of personal loan. Usually, most personal loans have a fixed interest rate. That means you know exactly how much you will have to pay in the monthly installment till the period of the loan.
Moreover, you are also aware of the total amount of loan you will pay till the end of the tenure. If you want self-employed loans, you can get them at a fixed rate of interest.
4. Adjustable-Rate Personal Loans
Some lenders also allow you to borrow money at an adjustable interest rate. This type of loan is also known as a variable-rate personal loan. In this type of loan, the rate of interest may vary with time, depending on the market conditions.
Initially, it may seem attractive if the interest rate is low. However, it can be turned into a mess as the rate can increase later. You are not sure about the interest rate, and you may have to pay a variable amount every month.
So, it’s better to drop the idea of taking variable rate personal loans if you cannot quickly pay off the loan. Usually, those who need self-employed loans choose this option.
5. Debt Consolidation Loans
It’s a kind of loan that includes multiple debts into a single loan. With a single monthly payment, you can pay your medical bills, credit card bills, payday loans, and other personal loans.
This will help you to reduce your monthly cost of paying multiple interest rates. If you want to apply for a debt consolidation loan, you can choose from different plans.
The Bottom Line
It doesn’t matter why you need money, but self-employed loans may be the best option for you. As mentioned above, unsecured loans are easy to get if you have a high credit score, but they have high-interest rates.
Moreover, it may negatively impact your credit score if you fail to repay your installments. If you have assets that you can keep for collateral, secured loans are best because they have low-interest rates. Finally, you should avoid variable-rate personal loans and opt for fixed or debt consolidation loans that offer simple and easy to repay.