There are times when we could all use a little extra cash. A personal loan can be a lifesaver if you’re having financial difficulties. Depending on the lender, personal loans can range from several hundred to several thousand dollars. Short-term loans often give you one to five years to pay them back. However, long-term loans are also an option.
You can make the best financial decision after carefully considering the many personal loan options available. That’s why we chatted with Green Sprout, a site devoted to fostering financial growth. This was what we learned about the different types of financial loans.
Unsecured personal loans
Unsecured personal loans are the norm and do not require any asset as collateral. Because of this, lenders may attach a slightly higher APR, that is, an annual percentage rate, to the loan to compensate for their increased risk. The annual percentage rate (APR) represents the sum of all interest rates and fees associated with a loan.
When applying for an unsecured personal loan, your credit score, income, and existing debts will all play a role in determining your eligibility and interest rate. Repayment periods might range from two to seven years, and interest rates can go anywhere from six percent to thirty-six percent.
Secured Personal Loans
To qualify for a secured personal loan, you must pledge an item of value as security. For instance, you could take out a title loan secured by your car.
Although this may seem like a good idea if you have a bad credit score but have an asset you can use as collateral, it does come with certain drawbacks. If you default on your loan, the lender may take and sell the collateral to repay their losses.
Debt Consolidation Loans
Generally, people take out debt consolidation loans to save money on interest and pay off their debts more efficiently. In addition, the repayment process is simplified for the borrower, says Green Sprout.
The goal of debt consolidation is to obtain a loan at a more manageable interest rate than what you initially pay on the debts before you consolidate them. With the money from the loan, you can pay off the old debt and start making regular payments on the new loan for a predetermined time frame.
You might potentially save a lot of money on interest payments and reduce your debt load.
Revolving Lines of Credit
Revolving lines of credit, as pointed to us by Green Sprout, allow you to borrow funds repeatedly up to a predetermined maximum. You are required to make a minimum payment each month, but you can also pay off the entire sum.
Interest is charged on top of the principal balance if you have one. Credit cards, personal lines of credit, and home equity lines of credit are different kinds of revolving credit (HELOC).
Installment loans are loans that require a predetermined number of installments. Once those payments are made in full, the loan is considered to have been repaid. This is in contrast to revolving credit, which allows you to borrow money and pay it back over a certain period (often several months or years).
This type of loan state can come in the form of credits for vehicles, education, and personal needs and have definite payoff dates.