Loans can be good and bad depending on where you’re coming from. There are different types of loans that can be obtained from various lenders in order to perform a particular transaction, task or solve a particular problem and one of such loans is ‘Personal Finance Loan‘.
Every body has their own needs and reasons for borrowing and there are equally different types of loans available to cater for the needs of borrowers. Many of which are specific to a particular need such as car loans, mortgages, student loans, boat loans etc. But then there is also Personal Finance loan which can be very helpful in your situation.
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What Is A Personal Finance Loan?
A Personal Finance Loan or simply ‘Personal loans’ are installment loans that can be obtained from either a bank, credit union, payday lenders, etc for virtually anything you can think of. So whereas loans such as mortgages are for homes; auto loans for cars; student loans for college; etc, personal loans on the other hand are not restricted to just one purpose.
They are usually unsecured loans, which means that you don’t necessarily have to provide a collateral in order to secure your loan. This then makes the interest rates of personal loans a bit higher than secured loans such as car loans, mortgages etc.
But even with the interest, it varies from borrower to borrower and lender to lender. The credit score of a borrower is considered when granting loans and determining APRs. The higher your credit score, the better your APR and loan amount you qualify for bearing in mind that it also depends on the lender as well.
Because they are installment loans, repayment of it will be spread out on monthly basis over a duration up to five years.
Personal loans can be obtained from a bank, credit union, payday lenders, private loan provider, etc.
Types Of Personal Loans
There are a number of personal loans you can go for but you must understand what they are and if its best for your situation. They are;
- Unsecured personal loans
- Secured personal loans
- Debt consolidation loans
- Co-signed loans
- Fixed and Variable rate loans
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Unsecured Personal Loans
Unsecured personal loans are loans that can be obtained without the use of your house or car as a collateral. Because they are unsecured, interest on these loans are a bit higher than secured loans because the lender wouldn’t have anything to rely on in case you fail to make payments hence increasing the risk level of such loans to the lender.
However, they are also the most commonest type of personal loans one can get without the use of a collateral. Your credit score is very important here as lenders use that to determine APRs and how much loan you qualify for.
Secured Personal Loans
Secured personal loans is the opposite of unsecured personal loans. These loans can only be obtained by putting an asset of yours up as collateral so that the lender can take possession of it in case you fail to make payments. Assets such as your car or house could serve as collateral to secure such loans.
Because they are secured loans, interests on them are relatively lower than unsecured loans because they are less risky to the lender.
Debt Consolidation Loans
Debt consolidation loan is another popular type of personal loans which allows borrowers to consolidate or combine their debts into one new loan. It is more or less taking a new loan with better terms to pay back an older loan.
To consolidate your debts, you must look at getting a loan with lower interest rates than your initial debts so you can then use part of the loan to pay off the initial loan. This helps you to save some dollars in interest and helps you to pay back your loan in full easily.
Another type of personal loans is Co-signed loans where borrowers can apply for a loan with another person known as the cosigner or secondary borrower. Co-signed loans are available to borrowers with a not so good credit score who cannot qualify for a personal loan on their own.
So what happens is that, such a borrower must find a cosigner with a good credit score and credit worthiness to help them qualify for a loan and get better loan terms. By consigning a loan, he or she agrees to pay back the loan in case you fail to make payments.
Fixed and Variable Rate Loans
Your Personal loan rates can either be fixed or flexible and you must know them in order to determine which is best for you.
Fixed rates loans are the commonest type between the two. The rates in this case are fixed hence does not change in the course of the loan term making it possible to have a fixed monthly payment amount throughout the loan term. It reduces the uncertainty of how much you will be paying each month as is the case with variable rate loans.
Variable rate loans on the other hand have flexible rates that changes depending on the benchmark rate set by Banks. Hence your rates can either increase or decrease a number of times in the course of the loan term.
What Other Types Of Personal Loans Do We Have?
Other types of personal loans include;
- Buy now, pay later loans
- Personal line of credit
- Payday loans
- Pawnshop loans
- Cash advance apps
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Uses of a Personal Loan
Because the use of personal loans are not restricted to any specific purpose, you can use it for things such as;
- Debt consolidation
- Pay fees
- Home improvement
- Medical bills
- Auto repairs
Things You’ll Need When Applying For A Personal Loan
You’ll need all or some of these things when applying for a personal loan;
- Amount you wish to borrow and loan term
- Provide purpose of the loan
- Social Security Number
- Date of Birth
- Permanent residence address, email address, telephone number, etc
- Employment details
- Driver’s license
- Recent paystubs