Understanding the 4 Different Types of Personal Loans
Experiencing a financial dilemma is complicated, especially if you don’t want to tap into your personal savings to resolve it. While it’s best to avoid incurring debt by paying with your own money, it’s not always an option. Thankfully, you can apply for personal loans to finance your emergency expenses.
The Different Types of Personal Loans
Applying for a personal loan is the easiest way to resolve a wide range of financial issues. Since it’s not restricted for a specific purchase, you can use it for medical bills, home renovations, or even buying profitable stocks. Other than using it for funding, you can also use a personal loan to consolidate several debts.
Besides a personal loan’s versatility, you must also know what kind of personal loan to get. Knowing this information will help you make better decisions with your repayment strategy.
In this article, we’ll discuss the four types of personal loans you can apply for.
1. Secured Loan
Secured loans are paid in installments based on the value of collateral like a car, real estate, or other assets. If the borrower defaults on the loan, the lending company can seize the asset as part of the repayment. Since this option is generally less risky for loan lenders, interest rates may be substantially lower. As long as you can pay your debts on time, you shouldn’t worry about losing ownership of your personal belongings and assets.
2. Unsecured Loans
Unsecured loans are similar to traditional loans by being paid in monthly increments. Additionally, it’s backed by your credit score to determine the limit of your loan amount and corresponding interest rate. Although unsecured loans are pretty straightforward, lenders typically avoid this option if they have bad credit.
3. Debt Consolidation Loans
Debt consolidation loans combine several debts into a singly monthly payment. It’s a great way to pay off different bills simultaneously to reduce your overall monthly costs. Keep in mind that debt consolidation loans won’t free you from your overall debt. This is why you need to stay disciplined in paying off your loan. Additionally, it will help to look for a consolidated loan that offers lower annual percentage rate (APR) over your other dues.
4. Cosigned Loans
Cosigned loans can be unsecured or secured and makes several people obligated for repayment under one loan arrangement. This is usually a route for people with poor credit or limited credit history. Borrowers can have a cosigner with a better credit score to help with repayments, allowing lenders to feel more secure with approving the loan.
This loan option works best to qualify for better interest rates at higher borrowed capital. However, keep in mind that the cosigner will be significantly disadvantaged by negative repayment behavior. Missed or late payments affect you and your co signer's credit scores negatively, which is why it’s best to build trust between you and your cosigner.
Before applying for a personal loan, it’s vital to look at specific variables that will affect your repayment obligation. First, check the APR and other additional charges expressed in interest. While the interest rate may seem manageable, different fees can increase your actual expenses in the long term. It’s best to compute your net dues in advance so you can adequately prepare your budget for the following months.
Keep in mind that there isn’t an ideal personal loan that’s significantly better than the rest for everyone. However, there is a personal loan that appropriately fits your personal financial needs. By determining which loan is best, you can limit your options when looking for a lending company.
At Mid-Town Finance, we offer a variety of personal loan sizes to fit your financial needs. Our dedicated team will review our different options and put you on an affordable payment plan. If you want to apply for versatile personal loans in Birmingham, AL, contact us today!