10 Different Types Of Loans You Should Know About

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Though many people know that a loan is the best way to meet some of their financial needs when their own funds are not sufficient, most of them have no idea about the different types of personal loans on offer. Below, we list out ten most popular loans you can apply for right now.

  1. Secured Loans

These types of loans are backed by an asset that serves as the collateral for the loan. For example, you can pledge your land as collateral and take a loan against it. This is why these loans are called ‘secured’ since the lender’s safety is guaranteed by an asset. As such, interest rates for secured loans tend to be on the lower side.

  1. Unsecured Personal Loans

Unsecured personal loans are taken without any collateral. Usually, stable history of income is required to be approved for this loan. Unsecured loans also tend to charge higher interest rates than secured loans.  But once you consider that the lender is essentially taking an extra risk by providing you loan without any collateral, you can understand why interest rates are on the higher side. Make sure that you compare personal loans from multiple lenders so as to get the best possible interest rate and terms.

  1. Fixed Rate Loans

In a fixed rate loan, you will be paying a fixed rate of interest throughout the period of the loan. So, if you take a fixed rate loan at 5% per annum for 10 years, you will have to pay 5% interest every single year for the next ten years. This is very suitable for people who are looking for a stable loan that they can easily budget and manage.

  1. Variable Rate Loans

Unlike fixed rate loans, the interest rate of a variable rate loan is decided purely by the benchmark rate fluctuations. They normally have little APRs when compared to fixed rate loans. These are suitable for people who are looking for a loan for a short period of time.

  1. Personal Line Of Credit

This is almost like a credit card in the sense that you will have access to a fixed sum from which you can borrow as and when required. And the interest is only charged on the borrowed amount. So, if the lender approved $2000 as personal line of credit at 9% interest and you borrow only $500, then you will only have to pay 9% interest for $500. This is suitable for people who want an emergency source of funds they can rely on whenever they want.

  1. Debt Consolidation Loans

If you have multiple loans and find it difficult to manage all of them, the best thing you can do is to consolidate them into a single loan. As a result, you will only have to make a single monthly payment. The interest rate of the new loan will also be lower than the previous loans.  

  1. Co-Signer Loans

If you do not have a credit history, getting a loan by yourself can be pretty tough. This is where co-signer loans come in. if you can get someone with good credit history to be your co-signer, you can easily get approved for any loan. This tactic can also be used in case you have bad credit. Remember that the co-signer will become responsible for the loan in case you end up defaulting on it.

  1. HELOC

A Home Equity Line Of Credit (HELOC) is a loan that is provided based on your equity in your home. For example, if your house is valued at $100,000 and your equity stands at 30%, then you can borrow up to $30,000 against the property. Interest rates tend to be lower than that of unsecured loans and credit card debt.

  1. Cash Advances

A cash advance is simply money that you borrow from a bank using your credit card. You can withdraw the money from the nearest ATM. These are usually short-term loans that have to be repaid quickly. Interest rates are higher than normal. Plus, you will also have to pay cash advance charges which can run up to 5% of the borrowed amount.  

  1. Payday Loans

A payday loan is a very short-term loan that the borrower has to repay when the next payday arrives. Make sure to read this article on the topic does payday loan consolidation work? Interest rates are very high, which makes payday loans a losing proposition for most people. However, those who need money urgently without having to go through the formalities of being approved a loan typically resort to payday loans.

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