Understanding the Different Types of Personal Loans and Which One Is the Best for You
Consumer Affairs reported that personal loan rates were falling in July 2022, despite other interest rates rising. They also mentioned that people with good credit scores are getting excellent rates.
To take advantage of these favorable rates, it makes sense to look at the types of personal loans on the table. Yet, the information you might find online might be overly complicated and confusing?
If so, we’re here to help! In this short guide, we’ll highlight some of the more popular personal loan options for you to consider. Let’s run through those options now.
Secured and Unsecured Personal Loans
The simplest way to compare personal loans is to put them into two categories. There are secured personal loans and unsecured personal loans.
Secured loans are ones where you provide the lender with some sort of collateral. This could be that you allow the lender to have access to your bank account, or you might put forward a valuable item.
The potential benefits of a secured loan are that you might get more favorable rates than other loan types. Furthermore, if your credit score isn’t so good, a secure loan provider may offer you a loan where others won’t. They’re also a great way of securing a quick loan.
Unsecured loans involve no collateral, but instead, you rely on the weight of your credit score to get such a loan. If your credit score is excellent, then you are likely to get the best rates. But. if your score isn’t so great, then the rates the lender offers you might not be so good, so it won’t be the best personal loan type for you.
Specific-Purpose Personal Loans
Specific-purpose personal loans are when you borrow money for a particular reason like building credit or going on vacation even. One benefit of getting a specific purpose loan is that you might get slightly better rates on one than if you got a more generalized personal loan.
With a credit builder loan, the lender provides you money for the purpose of building a better credit score. You can get these sorts of loans secured or unsecured. They often aren’t large loans, with the idea being you can afford to make all your payments on time to build up a good credit score.
Vacation loans tend to be unsecured. They’re good for people that don’t have very much in savings but a decent income. Since people often spend a lot more day-to-day than usual when on vacation, it’s nice to have the extra cash. And if you pay off your vacation loan on time, you can also expect to build up your credit score too.
Types of Personal Loans Explained
You now know the basics about the different types of personal loans you can get today. They’ll either be secured or unsecured, and either a general loan or one for specific purposes.
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