The Types Of Personal Loans: Which One Is Best For You?
Personal loans come in multiple forms and with a few specific conditions. The conditions can be broken down as:
– Secured vs unsecured
– Fixed-rate vs variable rate
Secured personal loans are loans that require you to put up collateral. Certain lenders will require that you have collateral for their loans, depending on certain circumstances. The main way they determine if you need to put up collateral is through your credit score. The higher your credit score is, the fewer collateral requirements you’ll encounter.
Fixed-rate loans are far more common than variable-rate loans. Loans with fixed rates stay the same, as do your monthly payments.
Variable-rate loans come with a benchmark rate set by the lender, but the rates are subject to change. These loans will see their interest rates and monthly payments change alongside the bank’s benchmark rate. Loans like this are rarer than fixed-rate loans and usually offer better APRs.
There are also several kinds of personal loans. Because certain large expenses are so common, there are several unique categories of loans. These categories include:
1. General term loans
2. Car loans
3. Home equity loans
These kinds of loans will carry a few differences from each other, apart from the expense each kind of loan was meant for. For example, car loans require you to own a vehicle, which will be used as collateral. Home equity loans are similar, but are meant for homeowners, because the equity in their home is used as collateral.
The type of loan that is best for you depends on your situation. The main thing to keep in mind is that the lower your credit score is, the fewer options you’ll have