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7 types of personal loans

There are many different types of personal loans. Each has its own terms, requirements, and repayment structures. Before you borrow, learn more about personal loans to find out which one might fit your needs.

7 Types of Personal Loans


Many personal loans are unsecured with fixed payments. But there are other types of personal loans, including secured and variable-rate loans.

The type of loan that works best for you depends on many factors,  including:

  • Your credit score
  • Time you need to repay the loan
  • Your specific financial situation

Before you borrow, learn more about personal loans to find out which one might be right for you. 



1. Unsecured personal loans

Unsecured personal loans aren't backed by collateral, such as your home or car. Since there is nothing securing the loan other than your credit score, they are typically riskier for lenders. As such, you may see a higher annual percentage rate (APR) on the loan. The APR is your total cost of borrowing and includes the interest rate and any fees.

Approval and the APR you receive on an unsecured personal loan are mainly based on your credit score. 



2. Secured personal loans

These loans are backed by collateral, such as your home or car. The collateral can be seized by the lender if you default on the loan.

Examples of secured loans include mortgages (secured by your house) and car loans (secured by your car title).

Some banks, credit unions, and online lenders offer secured personal loans, where you can borrow against your car, personal savings, or another asset.

Since the loan is backed by an asset, secured loans are considered less risky for the lender and rates are typically lower than unsecured loans.



3. Fixed-rate loans

Most personal loans carry fixed rates, which means your rate and monthly payments (sometimes called installments) stay the same for the life of the loan.

Fixed-rate loans could make sense if you:

  • Want consistent monthly payments
  • Are concerned about rising rates

Since you don't have to worry about your payments changing over time, a fixed-rate loan might be easier to fit in to your monthly budget.



4. Variable-rate loans

Interest rates on variable-rate loans are tied to a benchmark rate set by banks. Depending on how the benchmark rate fluctuates, the rate on your loan, as well as your monthly payments and total interest costs, can rise or fall with these loans.

One benefit to variable-rate loans is that they typically carry lower initial APRs than fixed-rate loans. They may also carry a cap that limits how much your rate can change over a specific period and over the life of the loan.

A variable-rate loan can make sense if your loan carries a short repayment term, as rates may rise but are unlikely to surge in the short-term.



5. Debt consolidation loans

This type of personal loan rolls multiple debts into a single new loan, which gives you one rate and one monthly payment.

Debt consolidation only makes sense if the APR is lower than the rates on your existing debts, and if you're sure you can repay the loan on time.



6. Co-sign loans

You may have to get a co-sign loan if you have thin or no credit history and can't qualify on your own. A co-signer promises to repay the loan if you don't, and acts as a form of insurance for the lender.

Adding a co-signer who has strong credit may:

  • Improve your chances of qualifying
  • Get you a lower rate
  • Improve the terms of the loan



Personal line of credit

A personal line of credit is revolving credit, more similar to a credit card than a personal loan. Rather than getting a lump sum of cash, you get access to a credit line that you can borrow from when you need to. You pay interest only on what you borrow.

A personal line of credit works best when you need to borrow for ongoing expenses or emergencies, rather than a one-time expense.



What type of loan is right for you?

While there are many different types of loans available, there is usually one type that will work the best in any given circumstance.

Keep in mind that it’s best to take out a loan only when it’s a necessary expense, such as buying a car or house, paying for medical bills, or refinancing existing debt.

Using them for vacations or purchasing big luxury items beyond your means can lead to racking up unnecessary and expensive debt. That won’t be good for your wallet or your credit score.

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