When people need money, a personal loan is one of their best options. A personal loan is money that you borrow from a bank, online or branch-based lender, or credit union and that you pay back in monthly payments. Personal loans can be as little as a few hundred dollars to as much as thousands of dollars, depending on the type of loan. Borrowers must pay back the personal loan within as little as a few days to as much as several years. Is a personal loan right for you? To find out, it is important to know about the different types of personal loans that are available.
Secured personal loans
A secured personal loan is a loan where borrowers offer collateral, or something of value, to the lender, such as a home or car. This collateral helps protect the lender if the borrower is unable to repay the loan. If the borrower can’t pay off the loan at all, which is called default, the bank/lender can legally take your collateral and sell it to get back the money that was never paid back. Common types of secured loans include:
- Mortgage, where you use your property or home as collateral.
- Auto loan, where your vehicle is used as collateral.
- Home equity line of credit, where you borrow from your home’s value as a form of credit, like a credit card. Your home also serves as collateral.
Most secured loans are for a lot of money. This is why banks, lenders, and credit unions protect themselves in case a borrower can’t repay their loan.
When is a secured personal loan a good idea? If you need a lot of money for a big purchase like a car or home, adding collateral may increase the amount of money you can get from a loan and also may lower the interest rate you pay on the loan.
Unsecured personal loans
Unsecured personal loans do not require you to use collateral like your house or car. That can be a good thing since there’s no risk of losing your home or car. But lenders are not protected by collateral like they are with secured loans, so the interest rates/annual percentage rates (APR) for unsecured loans are usually higher. Types of unsecured loans include student loans and credit cards, and even simply loans that people need for unexpected expenses.
When is an unsecured personal loan a good idea? If you need money for emergencies such as home or car repair or a medical bill. When researching unsecured personal loans, compare payment terms/monthly payment amounts and how long the loan is to figure out what works best for you.
Debt consolidation loans
A debt consolidation loan combines more than one debt into one loan with one monthly payment, and sometimes a lower interest rate. This type of personal loan is a good option if you owe money on more than one loan, such as credit card debt on more than one credit card. When people have this type of debt and fall behind on all of these loan payments, their credit score could get worse. Debt consolidation loans can help people keep track of their debt more easily, because all of the debt is rolled into one loan amount that you pay off little by little each month. Debt consolidation loans are usually fixed-rate, which means the interest rate stays the same each month. This can help if you have debt on many credit cards that have different interest rates. By combining all of that credit card debt into one monthly payment with the same interest rate every month, you can save money on interest and also save time that you used to spend keeping track of all your credit card bills.
When is a debt consolidation loan a good idea? When the loan offers a lower APR than the rates you have on your debts right now. This can save you money on interest so you can pay off the debt faster.
A co-signed or joint personal loan has both good and bad parts to it. The good things are that the borrower has a better chance of getting a loan and a better interest rate and loan terms when the co-signer on the loan has a good credit history or credit score. When taking out a joint loan, the co-signer must promise to pay back the loan if the borrower isn’t able to. The co-signer does not have access to the loaned money though; only the borrower does. The bad part about a co-signed/joint loan is that both the co-signer and the borrower are both responsible for paying the loan back. Any missed or late payments will hurt both people’s credit score and history.
When is a co-signed/joint loan a good ideal? When borrowers can’t take out their own personal loan, or they want a lower rate.
Types of loans to avoid
Credit card advance
Credit card companies allow you to use your card to take out cash loans from a bank or even an ATM. This sounds like a good thing, but it is also very expensive. Not only will you pay higher interest rates for this quick cash, you’ll also spend money on cash advance fees, which can range from around $10 to as much as 5% of the total amount you borrowed.If you borrowed a lot of money, these fees can add up quickly.
Payday loans are unsecured loans that are usually not the best choice. The one good thing is that you can get money quickly. Payday loans are usually around $500. The bad things about payday loans are that they usually must be paid back in about two weeks or when the borrower gets their next paycheck. These loans usually are paid back in one large amount rather than more affordable monthly payments like other personal loans; and interest rates are high, costing you between $10 and $30 for every $100 that you borrow–that can cause even more serious debt.
Cash advance app
Cash advance apps can be installed on your phone or tablet, and they allow you to borrow small amounts of cash from your next paycheck. These loans are usually around $250 or less, but the apps usually charge you some type of monthly subscription fee and other fees that add up to what is a very high APR. Cash advance app loans are like payday loans because they are short-term, high-interest loans that do not require a credit card.
Choosing the right loan
All of these personal loan options can help a borrower who is in need of money, even if some of the loans wind up hurting them in the long term. At Sun Loan, our personal installment loans have been helping customers borrow the money they need and allowing them to repay it through a consistent set of affordable monthly payments. Because we help make these loan payments easy to afford, our customers get the money they need while they establish their credit score by making loan payments on time. If you need a loan, get in touch with Sun Loan today and let us walk you through the personal installment loan application process!