Many personal loans are unsecured, coming with fixed payments. However, there are other types of personal loans, such as secured and variable-rate loans.
Deciding on the type of loan that works best for you will depend on factors like your credit score and how much time you need to repay the loan.
Unsecured Personal Loans
This type of personal loan is common and isn’t backed by collateral, like your home or car, making them much riskier for lenders who may charge a slightly higher annual percentage rate or APR. This is your total cost of borrowing and it includes the interest rate and any fees.
Secured Personal Loans
These are loans backed by collateral, which can be taken by the lender if you default on your payments. Examples of other types of secured loans include mortgages and car loans.
Some lenders will offer secured personal loans, where you can borrow against your car, personal savings, or any other asset of your choice.
Fixed-Rate Loans
Most personal loans have fixed rates, meaning your rate and monthly payments, also sometimes called installments, stay the same for the life of the loan.
Fixed-rate loans help if you want consistent payments every month and if you’re concerned about rising rates on your long-term loans. Getting a fixed rate makes it way easier to budget since you don’t have to worry about your payments changing.
Variable-Rate Loans
Interest rates on these loans are tied to a benchmark rate that is set by banks. Depending on the benchmark rate fluctuating, the rate on your loan (as well as monthly payments and total interest costs) can rise or fall with these loans.
Debt Consolidation Loans
This personal loan rolls several debts into a single new loan, carrying a lower APR than the rates on your existing debts. Consolidating will simplify your debt payments by combining your debts into one fixed monthly payment.
Co-Sign Loans
This is for borrowers with little to no credit histories. A co-signer will promise to repay the loan if the borrower can’t, and acts as a form of insurance for the lender.
Personal Line of Credit
This is a revolving credit similar to a credit card. Instead of getting a lump sum of cash, you get access to a credit line from where you can borrow on a need-basis and you pay interest only on what you borrow.