If you’re seeking a personal loan, know that there several types to select from depending on your credit situation and ability to repay.
Definition of a Personal Loan
A personal loan is a loan made for any purpose not specifically defined. It doesn’t have to be secured by any assets. In fact, personal loan recipients use the money for “general purposes”.
There are two main types of personal loans.
Secured Personal Loan
As this suggests, a secured personal loan is backed by collateral. This may be a home, a boat, a car or another financial asset. Lack of repayment will result in repossession of the property. If you secure a loan with a home and can’t repay, you could lose your home to foreclosure.
An Unsecured Personal Loan
An unsecured personal loan is not secured by anything other than the signature of the recipient. It’s usually based on general creditworthiness.
Because it’s unsecured, the lender will charge a higher interest rate because of the additional risk. If not repaid, the lender would resort to legal claims to make good on the loss.
Secured or unsecured personal loans can be obtained via banks, credit unions, loan companies at brick and mortar places or online.
Following are eight personal loans you might be able to obtain on a secured or unsecured basis:
Home Equity Personal Loan
If you have enough equity on your home, you might be able to get a personal loan secured by your home equity. Advantages of a home equity loan are:
- The interest rates are lower because the money is secured by your home
- You may be able to borrow a larger amount
- The payback term will be longer
- The payments may be lower
A major disadvantage of using your home’s equity as a personal loan, of course, is that if you cannot repay, you could lose your home to foreclosure.
Home Equity Line of Credit
Again, if you have enough equity in your home and don’t want or need all the money at once, you might want to consider a personal line of credit secured by your home.
Major advantages of this approach are:
- You only pay interest on the amount you borrow
- You have control over how and when you use the money
- The payments are interest only, so they’re usually lower
If you can’t repay the line of credit, you could lose your home to foreclosure.
Short Term Personal Loans
Short term personal loans have the following two characteristics:
- High interest rate- This is because repayment period is so short.
- Small loan amounts- Many online companies will only loan up to $1500 for a short term loan. Banks don’t offer more than $15,000 or $20,000. Collateral may also be requested.
An example of a short term personal loan is a title loan where you borrow an amount secured by the title to a vehicle you own. If you don’t repay, the car will be repossessed.
Fast Cash Advance Loan
A cash advance or payday loan might be useful to take care of an unexpected expense. Characteristics of these loans are:
- They’re easy to qualify for. Usually all you need are some paycheck stubs.
- They have a short term life. You usually have to pay it back within two weeks.
- The interest rates are very high. For example, you can pay up to $30 to borrow $100 at some payday loan firms.
Military Payday Loans
These loans are offered by military loan companies to assist qualified members of the armed forces in getting money when they need it. Some characteristics of these are:
- It’s specific for men and women of the military
- It has a low rate of interest
- A repayment schedule can be chosen by the borrower
- The money can be obtained even if the applicant has bad credit
No Credit Personal Loan
These loans have the following characteristics:
- They’re designed specifically for people with no credit history
- A credit check may not be required
- The interest rates may be high
Make sure you read the fine print and comparison shop for these loans.
Second Chance Personal Loans
If you’ve run into an unforeseen financial crisis or a personal tragedy, you may be able to get a second chance personal loan:
- This can be a secured or unsecured loan
- Collateral (a home) will probably be involved
- You will experience a higher rate of interest, shorter payback times and limits on the amount that can be borrowed.
Christian Lending Personal Loans
Some Christian credit counseling organizations also offer debt consolidation loans. This is designed to get the person out of debt:
- You’ll work with a financial counselor to total all you bills and negotiate with your creditors to obtain the lowest monthly payment
- You only have to make one payment a month
- There are usually some flexible options and repayment plans available
Shop and select carefully from these and other options available for personal loans.