9 types of personal loans for your needs
Unsecured Personal Loans
An unsecured personal loan is not secured by any collateral. As a result, unsecured loans pose a higher risk for lenders. Lenders typically require a higher credit rating to qualify for an unsecured loan. Common examples are credit cards and payday loans. Here are more types of unsecured loans.
Loan for home improvement
Mortgage loans finance renovation work. Examples include a kitchen or bathroom remodel or home repairs.
Ideal for people who want to add value to their home
Home improvement projects can increase your enjoyment of your home and also add value when you sell your home. According to Zillow Group’s 2020 Consumer Housing Trends Report, the average homeowner makes 2.3 home improvements as they prepare to sell their home. At least 79% of homeowners make at least one home improvement.
Debt Consolidation Loan
Debt consolidation loans are used to pay off multiple debts. Examples include credit card balances, personal loans, or other types of debt.
Ideal for people who want to simplify their finances and pay off loans faster
Debt consolidation allows people to refinance their debt by consolidating higher interest rate credit cards and other debt into one payment with a potentially lower interest rate. This can help reduce the total interest paid over time and simplify their finances by making one payment instead of multiple payments.
Peer-to-Peer (P2P) loans are loans from other people. Financial institutions are cut out as a middleman. Many websites allow P2P lending between individual borrowers and lenders.
Best for people looking for alternative sources of credit
Also known as “social lending” or “crowd lending,” P2P lending is a relatively new alternative source of lending. P2P is best suited for people who want to avoid the red tape of large financial institutions and get access to funds relatively quickly. P2P websites match lenders with potential borrowers. Borrowers apply for a personal loan on the site and investors can choose who to lend money to. Borrowers can get P2P loans from multiple investors.
Payday loans are short-term, high-interest loans that are usually due in one lump sum by your next payday. Currently, 37 states regulate payday loans due to high costs.
Best for people who need emergency cash and have no other options
Payday loans are typically $500 or less and repayment is due on your next payday. Depending on state laws, people can get payday loans online or through an in-store lender. A typical two-week payday loan can have an annual percentage rate (APR) of up to 400%. In comparison, credit card APRs can range from 12% to 30%. Payday loans should be viewed as a last resort.