When it comes to personal loans, you probably already know about the unsecured ones that are paid off in fixed monthly installments. However, there are all kinds of personal loans and the type that’s best for you depends on a bunch of factors, including your individual needs, your credit score, and how long you need to pay back the loan.
Secured Personal Loans
These personal loans are secured because some kind of collateral is attached to them; collateral which the lender can seize in the event of default. Mortgages and car loans are popular examples of such loans.
Unsecured Personal Loans
This type of loan isn’t backed by any personal asset. As a result, it is riskier for the lender, and so the interest charged is higher than that on a secured personal loan. Your credit score will determine the rate you receive as well as your chances of approval. The interest can be up to 36 percent, and the payment term can be anything from one year all the way up to seven years.
Fixed Rate Loans
These are loans where the interest rate, as well as the money you pay every month, is constant throughout the term of the loan. These are great loans to take if you want to pay the same amount every month and don’t want to deal with rising rates over the long term. They are generally easier to budget for. Individuals you know may be willing to lend you money with fixed terms – you may wonder, is it illegal to lend money and charge interest to friends and family members? The answer is no. Anyone can lend out money if they choose to, but it’s always a good idea to ensure that the terms are written down and both parties sign the agreement.
Variable Rate Loans
These loans peg their interest to the interbank rate, and so the interest you pay will fluctuate with the interbank rate. That means your monthly payments can be higher or lower from one month to the next, depending on how the interbank rate changes.
The main benefit of such loans is their annual percentage rates (APRs) are typically lower than the same for fixed-rate loans. They may also cap the extent to which your rate can fluctuate in a specific period as well as over the term of the loan.
Co-sign Loans
This loan is designed for borrowers with poor credit who can’t qualify for a loan by themselves. They can get a co-signer who guarantees the loan and will pay it back if the borrower cannot. A co-signer with strong credit may secure more favorable loan terms for the borrower.
Consolidation Loans
This type of loan bundles a bunch of loans into a single loan. The loan typically has a lower APR than the other loans, and so represents savings on interest. It also makes debt payment much easier.
Personal Lines of Credit
This is more like what you get with a credit card. You get access to a line of credit from which you can borrow whenever you need the money, and you only pay interest on what you have borrowed.
Credit Card Advance
You can get a short term cash loan from an ATM or a Bank using your credit card. It is pretty convenient but also pretty expensive.
Payday Loans
This is a special type of unsecured personal loan paid on the next payday of the borrower. The loan is typically small and consists of a few hundred dollars. They are short-term and a great option for people with a job and an active checking account but little to no credit. You can find lots of online payday loans in Delaware.
Pawnshop Loans
This is a special type of secured personal loan. You borrow against some kind of belonging, such as electronics, musical instruments, sports equipment, firearms and jewelry, which you will leave in the care of the pawnshop. If you can’t pay the loan back, the pawnshop can recover the amount by selling off your belongings.
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