Sometimes in life there are situations where we need extra money. One of the smartest options during these times is to apply for a personal loan. You can take advantage of different types of personal loans.
You can learn about all your options and then take an informed choice about it. The most common personal loans are secured loans, unsecured loans. Apart from these, you also have other lesser known options such as convertible loans, installment loans, payday loans, single payment loans and even online loans these days. Different personal loans come with either fixed rate or variable rate.
1) Secured Loans
A secured loan is when you show some asset of yours as proof that you can pay the loan back. In case of secured loans, when a person is unable to pay back the loan, they have to give up the asset to the lender of the money. All loans that you take on your home or car are examples of these. These loans are offered by banks and also other financial institutions.
2) Unsecured loans
Unsecured loans are also known as signature loans do not require the borrower to show any asset as collateral. It is a high risk loan for the lender but is quite common these days. It depends on the borrower’s credit history and all he needs to do is sign that he will pay back. Unsecured loans work on trust and as there is no guarantee, the rate of interest on these loans is quite high. A credit card can be considered as an example of unsecured loans.
Now we will tell you more about the other lesser known personal loans.
Convertible Loans
These are generally used in the corporate world where the person who lends the money can convert a part of the money lent as stocks in the company of the borrowers. This might increase the value of the loan with time. This can work well when the borrower is the head of an upcoming startup company.
Installment Loans
These are the loans that are quite common and are the ones where the borrower keeps giving back money at regular intervals of time till the principal and also the interest has been returned.
Single Payment Loan
The alternate to regular interval loans is this option. These are generally short term loans where the borrower pays back the principal and interest in one lump sum on a single day. An example of this is the payday loans. This is the type of personal loan when the lender is your boss or a senior at work. The money is given against the next month’s salary paycheck. Make sure you pick the payday loan only in times of emergencies. All the single payment loans come with slightly high interest rates.
Fixed Rate vs Variable Rate Loans
All different personal loans are either fixed rate or variable rate loans. In fixed rate loans, you will pay the same interest from the beginning till the end and is common with home loans. The interest rate is slightly higher than variable rate loans but it is because of better security. Variable rate loans are risky as the interest rate can go up or go down without any warning. Although the maximum of interest rate is fixed, the interest rate is lower than fixed rate loans. While picking a type of personal loans, make sure you pick either of these based on your financial needs.
How to get a Personal Loan?
If you have read the article and already found the right type of personal loan, then we have a few tips for you to get it –
- Keep a clean credit history and have a copy of it. Make sure it has no errors or anything shady.
- Check your credit score and keep looking for good deals on loans based on it.
- Make sure you understand the type of personal loan that you want and only then go ahead and sign up for it.
- Make sure to check out a couple of options thoroughly and only then pick up the one that works for you.
At the end of the day, taking a personal loan is a huge thing. It does involve you taking money and paying it back with some interest. Before you take this big decision, you should read up and know all about types of personal loans and also their advantages and disadvantages.
