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What Are the Different Types of Personal Loans That Exist Today?

Did you know about 22 million Americans have a personal loan? Not having enough money is never good. If you find yourself in this situation, a personal loan can help you out.

Personal loans are a specific loan niche that serves multiple repayment, funding, and financing needs. But with so many options out there, figuring out which loans to take out can be overwhelming.

Keep reading to learn more about the different types of personal loans you can take out and how they differ.

Secured Personal Loans

Secured personal loans are backed by collateral, such as a vehicle or home. When applying for a secured loan, you must typically undergo a qualification process.

Offer the lender your property assurance that the money borrowed will be repaid. While secured loans typically have lower interest rates and longer repayment periods, they also carry more risks because if you fail to repay the loan. The lender can take possession of your property and poorly impact when you are managing finances. 

Unsecured Personal Loans

The main benefit of an unsecured personal loan is that it does not require collateral. This makes them smart money for people with a small asset base or who are wary of putting up their property or another valuable asset as loan collateral.

Unsecured personal loans can be used for any purpose, from consolidating debt to financing a holiday. Credit unions and online lenders are good places to look for unsecured personal loans since they both typically offer competitive rates. 

Balance Transfer Loan

These loans enable the holder to transfer a high-interest balance from a single loan or multiple loans into another loan at a lower interest rate. You can enjoy lower monthly payments and a far more reasonable interest rate to pay off the outstanding balance of your loan over a longer period.

This is especially beneficial for those who need extra cash to help manage their debt but want to avoid accumulating more debt by taking out another loan.

Home Equity Loan

Home equity loans are secured loans that use the equity in the borrower’s home as collateral. This type of loan is beneficial for large projects such as home improvement, debt consolidation, or medical needs. These are also good alternatives to wage garnishment.

Additionally, home equity loans can have low-interest rates and flexible terms on debt repayment. This allows the borrower to deduct the interest they pay on their taxes.

Peer-To-Peer (P2P) Loans

Peer-to-Peer (P2P) loans are a type of personal loan typically for a short time, usually under a year, and generally unsecured. P2P loans are typically between two individuals who can trust and verify each other.

The borrower pays the lender a fixed interest rate and agrees on the repayment terms. P2P loans can have a lower interest rate than the average loan since they collaborate between two parties and not through a bank. There is typically no administrative or setup fee, credit checks, collateral, or income proof needed. 

Start Choosing the Right Types of Personal Loans Today

 A personal loan can help you cover an expense you weren’t expecting, purchase an item you wouldn’t otherwise afford, or consolidate debt. Before choosing the types of personal loans available, make sure to compare options and read the fine print. 

With the right loan for you, you can achieve your financial goals. Start by comparing personal loan rates and terms, and apply for your loan today.

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