Personal loans are loans obtained not for any specific purpose but are meant for “general use.” There are various types of personal loans and deciding which one to choose depends mainly on your condition as well as your ability to pay back.
Secured Personal Loan
This type of loan requires collateral, which can be a home, a car, a boat, or any other financial asset. In case the borrower fails to repay his loan, his property will be repossessed. This means that if a home is used to secure a personal loan and the borrower doesn’t pay back, his home will be lost to foreclosure.
An Unsecured Personal Loan
As the term denotes, an unsecured personal loan doesn’t require any property and is often based on the borrower’s creditworthiness. All that is needed to obtain this loan is the borrower’s signature. However, because of the additional risk involved with this loan it usually has a higher interest rate. If the borrower doesn’t repay, the lender’s only option is to claim it back through a legal process.
Personal loans of any type can be acquired through banks, loan companies, or credit unions. Here are some of these loans that you can acquire either on a secured or unsecured basis:
Home Equity Personal Loan
If your home has enough real property value, you can secure a personal loan through your home equity. With a home equity loan, you have better chances of getting a lower interest rate, borrowing a bigger amount, being given longer payback term and lower payments. But, of course, the biggest drawback to using your home’s equity is the risk of losing your home to foreclosure in case you cannot repay.
Home Equity Line of Credit
A personal line of credit can also be secured using your home. The advantages to this type of loan are you will be required to pay only the interest on the borrowed amount, you can decide when and how you’ll use the money, and you’ll be required to give lower payments. Again, the disadvantage is the possibility of losing your home to foreclosure if you are not able to repay the line of credit.
Short Term Personal Loans
Short term personal loans often have high interest rate, mainly because the payment period is very brief. Also, the loan amounts are usually small with most online companies not willing to loan more than $15,000 and with banks not loaning more than $20,000. In some cases, collateral may also be required. For instance, a vehicle title may be required for a short term personal loan, so if you are not able to pay it back, your car will be repossessed.
Fast Cash Advance Loan
Also called a payday loan, a cash advance loan is helpful in cases of an unexpected expense. Compared with other loans, this is perhaps the easiest to qualify for. Often you will be asked to submit only your pay check stubs. Payday loans also have a shorter term life. In general, they have to be repaid within two weeks.
No Credit Personal Loan
This type of loan is designed for those who have no credit history. This may not require a credit check. However, this loan may charge a higher interest rate. So before you sign up for these loans, make sure you do some comparison shop and read and understand all the fine print.
Second Chance Personal Loans
If you encounter a personal tragedy or an unexpected financial crisis, you might be qualified to obtain a second chance personal loan, which can either be a secured or unsecured loan. In some cases, collateral may also be required. With this loan, you might be able to borrow a smaller amount which may have a higher interest rate and shorter payback period.