In taking a personal loan, it is best to avail the type of loan that suits you best. You should apply for the one that fits your loan purpose, your financial capacity, and your ideal terms and conditions. To find out which type of personal loan suits you best, you should learn the main differences between these loans. Continue reading to learn more about the main types of personal loans offered in the market!
Main Types of Personal Loans
- Secured Loan
A secured loan is a loan that you avail by providing your lender with collateral. The collateral can be your car, house, or any of your possessions that have value. You may also provide a certificate of deposit as collateral to your lender. Because secured loans are considered to be less risky, lenders usually offer lower interest rates for this type of loan compared to unsecured ones.
You should only choose to get a secured loan when you are confident enough that you will be a good payor and if you don’t mind setting a possession as your collateral. Failure with repayments may end with the confiscation of your collateral.
- Unsecured Loan
An unsecured loan is a loan type that you can apply for without collateral. When you apply for an unsecured loan, your application (loan amount, term, and interest) will depend on your credit record. Because of the lack of collateral, unsecured loans are considered risky for the lender. Because of this, interest rates will be higher than secured loans.
- Cosigned Loan
If you have a poor or non-existent credit history, your lender may offer you a cosigned loan. This type of loan is either secured or unsecured. When you apply for your loan, your lender will ask you to have someone to cosign with you. Your cosigner will assume the responsibility for your repayments when you fail to pay your debt. Keep in mind that having a cosigned loan will not only affect your credit record but also the credit record of your cosigner. Failing to fulfill your repayment responsibilities will also cause your cosigner to have an unnecessary financial obligation.
- Variable-Rate Loan
If you are a risk-taker, a variable-rate loan may be suitable for you. This type of loan may offer you a higher or lower interest rate, depending on the market. Variable-rate Loans offer lower APRs compared to fixed-rate Loans. With this type of loan, the total cost of your repayments may change every month. You may get the chance to get super-low interest rates or overly high ones depending on the market conditions.
- Fixed-Rate Loan
If you are someone who likes to play it safe, a fixed-rate loan may be what’s best for you. This loan will provide you with the same interest rates and repayment costs from the beginning until the end of your loan. With this loan, you will have a fixed monthly budget for your repayments and also avoid paying higher interest rates.
Which Personal Loan Type Works for Me?
Choosing the best personal loan type for yourself is a decision that you will need to make after weighing all the benefits and disadvantages that each loan type has to offer. To choose the right one, having an honest contemplation on which one suits you best is a must-do.
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