If money grew on trees, wouldn’t be wonderful? Although currencies don’t sprout on trees yet, there are options for accessing finances when you are in need, which comes in the form of personal loans. If you need cash to handle an emergency situation or need money for your business startup or consolidate debts, then among the different types of loans, a personal loan is one of the handiest choices.
Types Of Personal Loans
The personal loan is one of the most straightforward financial tools that comes to rescue and help you reach your financial goals. Most personal loans are secured with fixed payments. However, there are other types of personal loans depending on the range of lenders. Personal loans also vary depending on the amount you would require which range from a few hundred dollars to tens of thousands.
This article would help you understand the different types of personal loans
Unsecured Personal Loans
These loans help you to borrow money for almost any purpose. You can use these loans to kick start your new career in a specific industry, debt consolidation, make big purchases and a few others. However, before getting started with this loan, it is important to understand, how this loan works and how much extent can you be beneficial with this loan. An unsecured loan doesn’t require any collateral to guarantee your loan. The lender cannot force you to pay the loan immediately, and there is less risk involved with this loan. However, lenders can take legal action against you.
Secured Personal Loans
A secured loan requires collateral like a property or an asset to be pledged to guarantee the loan. In the case of failure of payment, the lenders have the authority to sell your property or asset to pay back for the loan. One of the major advantages of the secured personal loan, when compared to the unsecured loan, is, secured loans can be obtained with a lower interest rate because lenders have lesser risk offering you the loan. Secured loans are further categorized into mortgage loans, car loans, and secured credit cards.
Fixed Rate Loans
If you know the amount of credit required for your loan, say for example you need to buy a touch screen mac laptop, fixed-rate personal loans is perhaps a beneficial option for you.
These loans set a fixed interest rate throughout the term. Other notable features of this loan are
- They are long term loans with fixed rate interest
- Loans are repaid through monthly payments
- Helps the individuals to plan a monthly budget and stick on to the loan repayment.
Variable Rate Loans
Variable rate loans are quite the opposite of fixed-rate loans. They do not offer a steady interest rate, unlike fixed rates. The interest rate invariably depends on the current market conditions, so it keeps fluctuating. Variable rate personal loans are most suitable for people who wish to repay the loan in a shorter interval of time. For people, who can foresee the economic conditions can go for this loan if conditions are favorable.
Debt Consolidation Loans
When people begin to experience financial difficulty, they often look for debt consolidation loans to find a solution to the debt problems.
A debt consolidation loan is, where a bank provides you with finance to pay your outstanding debts. For example, if you have three lines of credits and you owe close to 15,000 dollars.
Then typically, this loan would help you to repay the debt and close all the credit cards.
However, when you don’t do effective budgeting, you will end up with doubling up your debts. So, in order to use your loans effectively, proper budgeting is rather important.
This is a great loan for individuals, whose credit histories are not much appreciable. Creditworthiness is one of the important factors to get qualified for a loan. However, borrowers with low credit history can make themselves qualify for this loan. When you co-sign a loan, you will be the guarantor for the person who is borrowing the loan. The co-signor will agree to pay the borrower’s debt if he/she defaults the loan.
Personal Line Of Credit
Personal line of credit loan will help you boost your cash reserves. Perhaps, a secure and flexible option to meet your daily expenses. You don’t require to carry money in your wallet when you have a personal line of credit. However, there will be a certain credit limit based on your creditworthiness. This usually varies between lenders. One of the major side back of this loan is, it is usually accompanied by high interest rates.
Personal loans are straightforward tools to reach your financial goals; however, you need to consider whether you have other options with lower interest rate before going for a personal loan. Getting loans may sound excited but repaying is a real burden. So, make extensive analysis before going for loans.