There are a wealth of loan options out there, so it is understandable if borrowers feel overwhelmed about choices. And worry about making the wrong decision, with too much information to process. So we decided to take a look at the different types of loans. And consider which one, if any, may be beneficial for you.
Whatever you may need it for, personal loans can provide you with funds when you most need them.
How Personal Loans Work
Personal loans do what they say on the tin. They are loans taken out by an individual, for whatever purpose they deem necessary. Such loans allow you the flexibility over how much to borrow and the repayment period over which you must repay the debt plus interest charges. They allow borrowers to tailor credit to fit around their unique financial circumstances. Separate lenders have varying eligibility criteria for the approval of personal loans. These criteria are generally quite easy to meet, unless your credit score is poor.
When applying for a personal loan, a lender may request information about what you require the funds for. However, the purpose of the funds rarely has a bearing on whether or not you get approved.
Approval
Lenders approving you depends mostly on the lender’s conclusions after assessing your risk. Once approved, lenders rarely place restrictions regarding what you can spend the funds on. In most cases, you will have between one and five years to repay the loan. But people can get loans that are repaid within a month.
The 4 Types of Loans
There are four main types of personal loans available, each of which has its own pros and cons.
Unsecured Personal Loan
Unsecured personal loans are offered by lenders without any collateral required. Lenders approve unsecured personal loans based on your credit score. A good credit score will make it easier to get approved. Because there is no collateral involved, these loans are riskier for lenders. They offset this high risk by imposing higher interest rates on unsecured loans.
Types Of Loans – Secured Personal Loans
Secured personal loans are backed by collateral. Lenders offer unsecured personal loans against your car, personal savings, or any other valuable asset. If you fail to make payments, the lender can seize whatever asset you have put up as collateral. Because the risk is lower, you will a lower interest rate on these loans.
Fixed Rate Loans
With fixed rate loans, your interest rate and monthly payments remain the same throughout the duration of the loan.
Types Of Loans – Variable Rate Loans
With variable rate loans, the interest rate can rise or fall depending on prevailing market conditions. However. there is usually a cap on how much the rate can change over a specified period of time. These loans usually have a lower APR as compared to fixed rate loans. Variable rate loans.
Finding the Perfect Personal Loan
The key is to find a loan that works for you and your circumstances. Comprehending the technicalities of the different types of personal loans and the pros and cons of each can help you choose one that is right for you.
