Types Of Personal Loans

Types Of Personal Loans

You’re in way over your head financially. You’re considering asking for a loan to consolidate your debt. You want to buy a new home or car. Whatever your reason for wanting a personal loan and before you decide your best option, understand that a loan, regardless of the type, involves borrowing money and having to pay it back with interest.

Different Types of Personal Loans:-Personal loans are not one-size-fits-all. There are several options. Personal loans include:

    -Convertible loans
    -Fixed-rate loans
    -Installment loans
    -Payday Loans
    -Personal Loans
    -Online Loans
    -Secured loans
    -Single-payment loans
    -Unsecured loans
    Variable-rate loans

What Is A Personal Loan:-A personal loan can be a secured loan or an unsecured loan. This kind of loan is used for everything from funding an education or financing a new business venture to purchasing luxury items or taking a lavish vacation. A secured loan uses an asset — such as a house or car — as collateral (or support). If the borrower defaults on the loan, the creditor can take the asset. An unsecured loan does not require collateral, so it is considered high risk for the lender. As such, it has a higher interest rate.Personal loans have evolved over the years to meet the changing needs of the consumer. It used to be nearly impossible to get a personal loan with a limited or bad credit history, but today there are loan options for people with bad credit and nearly every other type of consumer.

Benefits Of Choosing a Personal Loan:-The major benefit of a personal loan is in the name: It’s personal. You can use it for any reason you like and you don’t need collateral to get one.The choices range from something practical like consolidating credit card debt or remodeling the bathroom to something whimsical like buying a boat or taking a European vacation. The choice is yours.Personal loans, especially unsecured ones, usually don’t require much more than filling out an application form and supplying documents that verify your financial standing. The money doesn’t have to come from a traditional source like banks or credit unions.Family and friends can be the source of money, though it is advisable to have a formal loan agreement with them to make sure the relationship doesn’t go sour. There also are a number of peer-to-peer online lending sources like Prosper and Lending Club, as well as sites like Kickstarter and IndieGoGo that cater to entrepreneurs. The online sites normally charge a fee, but if you need money and need it fast, this is one of the options available.

Some other benefits of personal loans include:

    -You get the money faster. In most cases approval is much quicker than with conventional loans.
    -Don’t need a bank. The money could come from an online lender, a family member or friend.
    -Fixed rate interest, fixed length of repayment and fixed monthly payments
    -Loan amounts available from $1,000 to $100,0000
    -Lower interest rates than credit cards.
    -If loan comes from bank, possible discounts on interest rates.

Each loan type serves a purpose, so it is important to understand how to obtain the best type of loan for your individual situation.

Convertible Loans:-Normally used for business, convertible loans allow lenders the option to convert the outstanding principal of the loan into an equity position in the borrower’s company, which over time, may be worth more.

Fixed-Rate Loans:-Most personal loans are fixed-rate loans. The interest rate remains constant, so you pay the same amount every month until paid in full. Most homebuyers look for fixed-rate loans when they purchase a home. Though the interest rate is higher than with an adjustable-rate home loan, this type of home mortgage offers more security.

Installment Loans:-These are what most people think of when they think of a loan. You borrow a set amount of money and then repay it along with interest at regular intervals over a set period. These loans typically finance homes, cars, and other expensive items.

Payday Loans:-In general, payday loans (sometimes called cash advances) are one of the most expensive borrowing options, charging extremely high interest rates and excessive fees. They are a small, short-term loan secured against your next paycheck and are typically used for emergencies only.However, there are several payday loan alternative lenders out there like LoanNow, which offer better rates and experience for borrowers.

Secured Loans:-A secured loan is such because you offer an asset, like a home or car, as collateral to guarantee repayment of the loan. If you fail to pay, the lender takes your asset. Home equity and standard car loans are examples of secured loans.

Single Payment/Bridge/Interim Loans:-The single payment loan has many names, including bridge loan and interim loan. Generally, a single payment loan is used for short term, temporary financing and is repaid with interest in one lump sum at the end of the term. Payday loans are examples of a single-payment loan.

Unsecured/Signature Loans:-Unsecured or signature loans do not require collateral. With the right kind of credit history, your mere signature guarantees this type of loan. Unfortunately, they have a high interest rate due to the high level of risk. Credit cards are the best example of an unsecured loan.

Variable-Rate/Adjustable Loans:-Variable-rate loans are riskier for consumers than fixed-rate loans because the interest rate adjusts at different intervals throughout the life of the loan based on the market. However, the maximum interest rate a lender can charge is limited (capped). It is generally easier to get an adjustable loan, and the initial interest rate is typically lower. The most common variable-rate loan is the ARM (adjustable-rate mortgage) for homebuyers.

Securing a Personal Loan:-If you’ve read this far and have decided that a personal loan is right for you, there are steps you need to take before you get cash in hand.

    -Make sure your credit is good by obtaining a copy of your credit history. Review it carefully and fix any problems (such as outstanding debt or errors in the report) immediately.
    -Check out your credit score (760 or higher gets you the best deal). You can get FICO scores and credit reports at  (consumer division of Fair Isaac Company). You can also ask a lender where you’ve recently submitted a loan application, though they might not provide it.
    -Shop around for a lender. Some suggest shopping local (like the corner credit union) before contacting the larger institutions.
    -Compare lenders’ annual percentage rates, called APR. This is the annual rate of interest you pay for a loan.

Applying for a personal loan is a big step. Before you take any action, make sure you fully understand your options as well as the advantages and disadvantages of borrowing.

Content Credit :- filmywap

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