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What Are the Different Types of Personal Loans That Exist Today?

The average American is over 90,000 dollars in debt. While it’s not always wise to take on more debt to settle previous ones, some have no choice. If you’re one of these people, it’s time to look into one of the many different types of personal loans. 

Depending on what your credit score looks like, you may qualify for one or even all of them. If you need a little help getting your personal loan, you can go with a co-signed option. 

If you don’t want to put that kind of responsibility on another person, check out this guide to learn about all the available loans. 

What Is a Personal Loan?

So, first things first. What is a personal loan? They are types of wealth management options that you can take out with banks, credit unions, and private money lenders.

As stated above, nine times out of ten, people get a loan to help cover a huge financial emergency. You can also use a personal loan to cover a home improvement project or consolidate your other debts. 

For the most part, when you put in an application for a loan, you’ll get an approval (or disapproval) message within a day. Once you give the bank your information, you’ll see the loan in your account within a few business days. 

For about 7-12 months, you’ll pay the bank back by submitting a payment. That includes paying interest. 

If you’re unfamiliar with what interest is, it’s the amount of money the bank charges you to borrow cash. The amount of interest you have to pay varies depending on your credit score. 

Unsecured Personal Loan

Now that you know a little more about what personal loans are, it’s time to delve right into unsecured personal loans.

Many smart money options require you to put something up as collateral. This way, if you can’t pay, the bank can at least sell your home or car to get the money you owe them. 

You don’t have to do this with unsecured loans, which makes them one of the best personal loans you can get. Unsecured loans typically come with a manageable monthly payment as well.

The downside is that since these loans pose a huge risk to the bank, they’re a bit harder to get. If you don’t have a good credit score and a decent job, there’s a good chance that the lender will reject your application. 

Secured Personal Loan 

You can’t take out a secured loan without putting something up for collateral. If you happen to default on the loan, the bank will take your car or home to cover your debt. 

On the upside, if you’re experiencing a huge financial emergency, secured personal loans are easier to get because they pose no risk to the bank. They also come with a fairly large interest rate. 

Be warned that not all banks and credit unions offer secured loans. Unsecured loans are much more common. 

Revolving Credit Loan

Credit cards are the best example of a revolving loan. You can borrow money up to your credit limit. When your bill is due, you can choose to make a partial payment or pay off your entire balance. 

The main benefit of credit cards is cash security. If you’re going to be late on a bill because it falls before your payday, you can put it on your credit card. Most companies offer incentives and cash-back rewards too. 

The annoying part of credit cards is the fact that payments fluctuate. The amount you pay every month depends on how much you borrow. Many credit cards have a high-interest rate attached to them too. 

Fixed-Rate Loan 

A good majority of personal loans fall into the fixed-loan category. What this means is for the entire course of the loan, your interest rate and the bill won’t fluctuate. You’ll pay the same exact balance every single month. 

Fixed-rate loans often have a high-interest rate attached. If you have a good credit score, you might be able to get away with a lower one, but that’s a big if. 

Debt Consolidation Loan

If you have a bunch of outstanding debts, consolidation might be a wise idea. It will take all your little loans and roll them into one large one. 

If you’ve taken out any student loans, you’ve most likely heard the word consolidation thrown around once or twice because they’re the most popular type of loan to consolidate. 

Consolidating is a great way to pay off high-interest loans faster, but try to refrain from consolidating your credit cards. 

You see, when you get a consolidation, it will wipe the balances on your cards clean and open a new loan. If you don’t stop using your credit cards while you pay off the consolidation loan, you’ll go deeper into the debt rabbit hole.  

Co-Signed Loan 

Need a loan but don’t think you can get one because of your credit score? It’s not a problem if you have a co-signer. A co-signer is a person who agrees to pay back your loan in the event that something happens to your finances. 

Having someone else vouch for you will help you get the money you need, and if you pay back the loan on time, both of your credit scores will go up. If you default on the loan, the opposite will happen, which might ruin your relationship with your co-signer. 

Types of Personal Loans to Be Aware Of 

As you can see, if you need emergency cash, there are many types of personal loans that can help you out. They all come with different credit requirements as well as pros and cons. 

If you find that you can’t get a loan with your current score, you can always talk to a co-signer. Don’t forget that you can also consolidate your debt to make it more manageable. 

For more tips that will help you handle your monthly expenses, visit the Money Management section of our blog. 

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