You never know when you’ll be needing a personal loan. Whether it’s for an emergency that you did not plan for or to cover the expenses of an old debt that you have been having trouble paying, personal loans may be a solution to financial dead ends. You don’t even have to be in a crisis to apply for a personal loan, you can apply for one if you want to buy a new car or a new expensive sound system for your home. If this is the first time for you to apply for a personal loan, or if you’re thinking of lending money as a way to make some extra profit on the side, then take this opportunity to learn about the different types of loans so you can understand which of them is suitable for your needs and circumstances. (Image Credits: Alexander Mils/Pexels)
1. Fixed and Variable Rate Loans
It’s actually pretty self-explanatory; fixed-rate loans mean that your payment, or in this case installments, are fixed throughout the whole period of the loan. In other words, you will pay the same amount of money every month. Even though you will not benefit from the fall in interest rates, this option allows you to plan out a budget for your loan without worrying about the rates ever increasing. Variable-rate loans work the other way around; you are to pay rates depending on the rise and fall of the market conditions. Variable loans could be a little hard to keep up with if the rates keep going up. However, it usually has lower interest rates than its fixed counterpart, and you can be one of the few that benefit from the drops of market interest rates.
2. Secured and Unsecured Loan
Secured or unsecured plans require collateral in order for you to take the loan. A secured loan is when you’re offered money against your car, house, or a valuable asset. It works just like a pawnshop loan that allows you to borrow money against an expensive asset of yours. Unsecured loans, on the other hand, are loans without collateral; they’re usually offered based on your credit score. A type of unsecured loan is payday loans that don’t require collateral, but the borrower needs to repay you the next payday. It’s a very nice option that allows you to borrow money without having to worry about paying it back until you’ve been paid yourself. It’s also easy to apply for, and you can find safe online payday loans that do not require a particular reason or circumstance for a loan to be eligible. It’s also very quick and easy to apply for a payday loan, as you can have the money put in your bank account overnight as soon as your loan is approved. The only disadvantage is that you might end up paying a slightly higher interest rate, but the simplicity of the process makes up for it.
3. Co-sign Loans
If your credit score isn’t great and you don’t think you’re eligible to take out a loan you need, you can consider applying for a cosigned loan; co-signing acts as a guarantee for the lender, if the borrower couldn’t fulfill the payment on time, the person that co-signed will repay the loan instead. It acts as insurance for the lender to minimize their risk and allow borrowers to get better deals and lower interest rates even in the event that they don’t qualify for a loan. Just make sure that the person you co-sign with is in better circumstances than you because if they have a low credit score, they might negatively impact the chances of you getting the loan you need. Therefore, you have to analyze your options and evaluate your chances before considering a co-signed loan.
Selecting a personal loan type depends on your credit score and the time you need to repay the loan. However, you will find lenders who are willing to lend you the amount of money you desire, even if your credit score is not very high. You just need to make sure that you are choosing the most beneficial type for your situation and that you commit to the agreement made with the lender. To stay safe, opt for lenders that will not put you or your money at risk and make sure that they will not force you to pay any extra fees or hidden charges. Remember that getting a personal loan is supposed to be a simple process that is beneficial for everyone, so understanding the pros and cons of every type is something you’ll want to consider before making the decision to borrow or lend someone money.