All personal loans are not created equal. In order to get the best loan possible, you have to think about which type is best for your situation.
As you search for loans, you will learn that many factors, including your credit, play an important role in whether or not you are approved and what kind of terms you get – like the interest rate.
To help you get started, we will cover five types of loans and review them to help you make an informed decision.
Unsecured Personal Loans
Personal loans are installment loans often used to fund weddings, vacations, emergencies or debt consolidation. These types of loans can be unsecured, which means you’re not putting your home or car on the line if you can’t pay back the loan.
Unsecured personal loans are great for consolidating debt and making a major purchase if you have good to excellent credit to help keep the interest rate low. People with less than perfect credit are often able to qualify for an unsecured personal loan, but they will want to pay attention to the loan terms and interest rate.
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Secured Personal Loans
Secured personal loans are installment loans that are secured by an asset such as a car, savings account or another type of collateral. If the borrower defaults, the lender can take the asset to cover all or a portion of the balance.
Secured loans are often less expensive than unsecured loans with lower interest rates. That’s because banks see them as less risky because the borrower is backing the loan with collateral. The downside of a secured personal loan is the potential loss of the asset backing the loan if the borrower defaults.
Payday Loans
Payday loans are short-term loans that usually need to be paid back by the next payday. There are a variety of things that can vary from state to state, such as how much you’re able to borrow, what the interest rate is, and the time frame within which you’ll need to pay it back. Some states even ban payday lending altogether. Find out if payday loans are legal in your state. Legal Status of Payday Loans by State
These loans are best for emergencies when there are no other loan options available. A payday loan is usually given in amounts of $500 or less and comes with incredibly high interest rates.
Title Loans
Car title loans are a way to borrow money based on the value of your car. You can borrow between 25% and 50% of your car’s value, and the typical amount ranges from $100 to $5,500. When you take out a title loan, you’ll usually be required to pay it back within 15 to 30 days. If you don’t, your car will be taken by the lender.
Title loans are often best for emergencies when there are no other options. If you don’t pay back a title loan on time, fees will be added to the loan and eventually, the lender will likely take the vehicle to cover the loan.
Pawnshop Loans
A pawn shop loan is one of the quickest ways to borrow cash. This type of loan is made based on the value of an item that you bring into the pawnshop like jewelry, electronics, or other valuables.
Pawnshop loans are best for those that need small amounts of cash with no credit check. If a pawnshop loan is not paid back in time, you could be charged additional storage fees, other costs and they could sell your item to cover the money loaned to you.
Summary
Ultimately the type of personal loan that works best for you depends on multiple factors, including what you need the loan for, how much money you will need to borrow, your credit score, the interest you’re willing to pay and more. There is no one size fits all solution regarding personal loans. Do your research to ensure you are making an informed decision and shop around to make sure that you get the best terms possible.
