Do you want to borrow money? You might want a personal loan if you want to buy a car, pay tuition, buy your first home, or pay off some debts.
Personal loans are taken out by individuals rather than businesses. It makes them easier to get than business loans.
But, just because personal loans are easy to get doesn’t mean it’s wise to do so. There are many types of personal loans, which all have different drawbacks and benefits.
Before taking out a personal loan, understand the common loan types and their drawbacks. If this is your plan, then you should read this article. Here is a look at the different personal loan types and what they offer.
Conventional vs. Alternative Loans
Conventional loans are typically offered by banks and credit unions. A bank loan has lower interest rates and more flexible repayment terms than alternative loans.
But, they may need collateral, such as a home or car, to get approved. Tools like Title Loanser help you make the right decision about your loan.
Alternative loans are typically offered by online lenders. They tend to have higher interest rates and shorter repayment terms than conventional loans. They don’t need collateral and can be easier to qualify for.
Good Credit vs. Bad Credit Loans
Good credit loans are given to borrowers with a strong credit score and a low debt-to-income ratio. These loans tend to have lower interest rates and more favorable terms.
Bad credit loans are offered to borrowers with a weaker credit score and a higher debt-to-income ratio. These loans have higher interest rates and less favorable terms.
Fixed-Rate vs. Variable-Rate Loans
A fixed-rate loan has an interest rate that stays the same for the entire term, while a variable-rate loan has an interest rate that can change over time.
With a fixed-rate loan, you know exactly how much you’ll need to pay each month, making it easier to budget your loan payments. But, you may pay more in interest if interest rates go down.
With a variable-rate loan, your contributions could go up or down depending on changes in interest rates. It can be risky, but it could also save you money if rates go down.
Lump-Sum vs. Installment Loans
A lump sum loan is typically given in one lump payment, while an installment loan is given in regular payments over time. Lump sum loans are best for those who need a large amount of money. It could be for a large purchase, such as a new car or a home renovation.
The downside to lump sum loans is that they often come with higher interest rates than installment loans. Installment loans are best for those who need a small amount of money over time. It could be for things like debt consolidation or paying off credit card debt.
The benefit of installment loans is that they have lower interest rates than lump sum loans. The downside is that you pay more in interest over time if you take out a larger loan.
Different Types of Personal Loans for Specific Needs
If you’re thinking about taking out a personal loan, it’s crucial to understand the different types of personal loans available to you. Each type of loan has its own set of terms, risks, and rewards, so it’s vital to choose the right loan for your needs.
Work with a financial advisor to decide which type of loan is right for your needs and goals. Check out the finance section of our website for more articles.