Four Types Of Personal Loans You Can Apply For
Under certain circumstances, you might have to take a loan to fulfill the expenditures. If you wish to be flexible, you might choose any revolving credit like a credit card. But if you are looking for a particular amount of money, opting for a personal loan is a better idea.
For example, you can choose an installment loan that you can return within a fixed period. You can make the payments every month until you pay back the entire loan amount. Below are some types of personal loans that you can apply for.
Secured Personal Loans
In case your credit history improves a bit, you can be eligible for a personal loan. But, the lender might offer the amount you want as a secured personal loan. What’s a secured personal loan? In this case, you will have to put forth an asset to guarantee the loan amount.
It can be your certificate of deposit, savings account, or even your vehicle. Compared to an unsecured personal loan, the interest rate for secured personal loans is lower, since the lender has very low risk. If you fail to repay your loan, they have your collateral to take possession of.
Unsecured Personal Loans
A majority of the personal loans that you will get are unsecured. Unsecured personal loans mean that you don’t have to offer an asset as a guarantee. In the case of an auto loan, your vehicle acts as collateral. Therefore, if you fail to pay, the lender can take possession of your vehicle. This is what happens in the case of a secured personal loan. As far as unsecured personal loans are concerned, you don’t have to back your amount with a guarantee, i.e., a physical asset.
Hence, if you face problems while repaying the loan, you don’t have to give up your property to the lender. Your, as well as your co-signers’ impressive credit history, will suffice if you are looking forward to picking up an unsecured personal loan from the market. You have to have a credit score lying between 670 and 739. The more, the better.
However, there are downsides to this. If you fail to make payments in time, your credit score is bound to suffer. If you fail to pay, it will affect your personal account, thereby destroying your credit score. For lenders, an unsecured personal loan has a lot of risks. To give them confidence, you need to have a solid credit history.
Fixed-Rate Personal Loans
Fixed-rate personal loans are those where the rate of interest stays the same throughout the loan. Your monthly payments remain the same as well. The advantage you get in this case is that you will know how much you have to shell out every month. This will make it easy for you to stick to your budget.
Another plus point is that you will know the interest amount you would have to pay throughout your loan’s life well in advance. You can therefore calculate the amount you have to pay every month before you apply for the loan.
Adjustable-Rate Personal Loans
Though adjustable-rate personal loans are not as common as fixed-rate personal loans, a few lenders might give you the option of choosing this type of personal loan. The interest rate, in this case, keeps changing from time to time. The main attraction of these loans is that the rate of interest is quite low at the beginning. After a particular period, the interest rate might undergo a change based on market conditions.
As a result, the payments per month can either go up or down. Yes, some caps can stop you from shelling out more than you usually would. But, you can still suffer from making monthly payments that can get higher than your expectations. Therefore, you should opt for adjustable-rate personal loans only if you are confident that you can repay the loan as quickly as possible.
If you have a big expense coming up, there are several types of personal loans you can choose from. Before zeroing in on one, make sure you research, compare quotes, and understand the pros and cons of a loan on your credit score. Do not forget to consult your legal advisor on which loan suits your needs best and why?
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