Around 63% of Americans live paycheck to paycheck. Unfortunately, this lifestyle often leaves people without money for days or weeks while waiting for the next paycheck.
As a result, some individuals turn to personal loans to get through these times. Of course, this isn’t the only reason people use personal loans, but it’s a popular reason.
Here Are Four Types Of Personal Loans:
You might also turn to a personal loan when you need some cash. So it’s vital to learn about the different types of personal loans, as there are multiple kinds.
Keep reading this guide to learn about the types and their uses.
1. Debt Consolidation Loans
Most Americans owe money on their credit cards. However, some people owe large amounts. When someone owes too much, they might have trouble making their payments.
People in this position might turn to a debt consolidation loan. This personal loan type is specifically for people who want to consolidate their credit card bills.
For example, suppose you owe $10,000 to five credit card companies. You could apply for a loan for $10,000 and use the money to pay off your credit cards.
As a result, you’d have only one monthly payment after getting a debt consolidation loan. Additionally, you’ll likely save money on interest charges if your loan interest rate is lower than your credit card rates.
2. Secured Personal Loans
When you see the word “secured” in front of a loan, it refers to collateral. Lenders issuing secured loans offer cash in exchange for an asset. For example, a vehicle is collateral with a car loan.
A secured personal loan requires some collateral for the lender to approve it. You can ask the lender what assets they accept. Of course, this varies by lender.
Some lenders accept vehicle titles as collateral for secured personal loans. Others might accept jewelry, electronics, or musical instruments. Of course, you can also use your house.
You can use the money you receive from a secured personal loan for anything. Some people use the money to pay bills, while others use the proceeds for emergency expenses.
One benefit of a secured loan is you might not need perfect credit. After all, the lender can keep your collateral if you default. Thus, the lender has very minimal with these loans.
3. Installment Loans
You can categorize installment loans as personal loans, but you might also classify these as secured or unsecured loans. Additionally, debt consolidation loans fall in this category.
The key characteristic of an installment loan is the repayment plan. You repay the proceeds through monthly payments. For example, your loan might require 12 monthly payments or more.
The monthly payments are equal amounts and cover the principal and interest. When you make the last payment, you satisfy the requirements. You’ll receive your collateral back when you make your last payment.
Installment loans are ideal for buying large purchases, such as cars or homes. Getting an installment personal loan is something people might also do for debt consolidation or other financial purposes.
You May Also Check: 6 Ways To Pay Off Debt Easily
»Line of Credit
You can also borrow money through a line of credit. A personal loan line of credit is like a credit card.
The lender approves your line of credit for a specific amount. You can borrow this amount when you need cash.
After repaying the money, you can continue borrowing from this line of credit. In fact, you can borrow from it whenever you have available credit.
Getting approved for a line of credit is a personal loan option that provides endless benefits. After all, you can continue using it when needed.
»Buy Now, Pay Later
Personal loans come in many shapes and sizes, and another option is a buy now, pay later loan. Buy now, pay later loans to have several key characteristics.
The first is that you get to use the personal loan proceeds to buy something or pay for something. Secondly, you repay the money through installment payments.
The most common example of a buy now, pay later loan is with car purchases. You can find car dealers offering this payment option, and people use these when they have bad credit.
Qualifying for a traditional car loan requires good or fair credit. If you don’t have good or fair credit but need a car, you can turn to this type of personal loan. Of course, you can also find these loans for other purposes.
4. Payday Loans
When people think of personal loans, they often think of unsecured loans. An unsecured loan doesn’t require collateral and might go by different names:
- Payday loans
- Fast cash loans
- Direct deposit loans
- Online personal loans
Unsecured loans offer quick cash with bad credit. You can apply for an unsecured loan online or in person, and the lender will give you an instant decision.
If approved, you must repay the funds within a short time. For example, the lender might require repayment in one to four weeks. At this time, you must repay the entire amount in a balloon payment.
These loans are ideal for people who only need to borrow money for a week or two.
Loans With A Cosigner
The final option involves a cosigner. A cosigner is a person who agrees to sign the loan documents with you for a personal loan. By signing the loan documents, this person agrees to pay the debt if you default.
People choose cosigner loans when they have bad credit, as having a cosigner might be the only way to get approved to borrow money.
The lenders issuing these loans base their loan approvals on the cosigner’s credit instead of the applicant’s.
Know the Types of Personal Loans to Choose the Right One
Learning the types of personal loans is crucial if you ever need to borrow money. By knowing the differences, you can choose the right one when you need a loan.
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