What is a Personal Loan?
Personal Loan is a kind of unsecured loan where the lender allows the borrower to use the funds according to his/her requirement. And to avail a personal loan, a borrower doesn’t need to show any security. Isn’t it amazing? But the concept of Personal Loans does not end here. There are different types of Personal Loans. And you are going to learn about them in this article.
Personal Loans can be of different types. Most of them are unsecured that comes with fixed payments, while some of them are secured that comes with variable rates. It depends on the circumstances of the borrower that which type of Personal Loan is the best for him/her.
TYPES OF PERSONAL LOAN
1. Secured Personal Loans:
Secured Loans are the loans where the borrower pledges security to the lender to get the loan. These loans are considered as less-risky loans for lenders. The interest rates of secured loans are less than unsecured loans. It is because these are less risky for lenders.
2. Unsecured Personal Loans:
Unsecured Loans are the loans which do not include security. That means there is no need for any security (collateral). These loans are risky for lenders. And this fact is responsible for the higher annual percentage rates.
3. Fixed-Rate Loans:
If a borrower wants to make monthly installments, then Fixed-Rate Loans are the best. In Fixed-Rate Loans, you don’t have to worry about rising in rates or payments change of the loan, as the percentage of the loan will be fixed.
4. Variable Rate Loans:
Variable Rate Loans are Benchmark based interest loans. The interest rates of these loans fluctuate with the benchmark of that particular bank. The variable rate loans carry low APRs as compared to the Fixed Rate Loans. These loans are the best when the repayment term of your loan is short.
5. Co-Sign Loans:
Co-Sign Loans are the best for the ones who are not eligible to get a mortgage on their own. In that situation, a co-signer promises the lender to return the loan if in case the borrower doesn’t repay it.
6. Debt Consolidation Loans:
In a Debt Consolidation Loan, all your debts will be converted into a single loan. It should carry the lower APR than the existing rates of all your debts. This will help you to save money on interest. And you will have to pay a fixed monthly payment on behalf of all your debts.
7. Personal Line of Credit:
This Personal loan is best for borrowers who don’t need a one-time expense. If you need funds for your on-going expenses, then this loan is recommended. It is much similar to the credit cards. You will have to pay interest for only that money that you have taken.
These were some of the Personal Loan Types. Besides these, there are some other loans also, like Payday Loans, Credit Card Cash Loans, and Pawnshop Loan. The best loan for you can be varied with different factors like your credit score etc.