9 Types of Personal Loans to Meet Your Needs
Unsecured Personal Loans
An unsecured personal loan is not secured by any collateral. Therefore, unsecured loans pose a higher risk to financial lenders. Lenders generally require a higher credit score to qualify for an unsecured loan. Common examples are credit cards and payday loans. Here are more types of unsecured loans.
Home improvement loan
Home improvement loans pay for home renovations. Examples include a kitchen or bathroom renovation or home repairs.
Ideal for people looking 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 the Zillow Group Consumer Housing Trends Report 2020, the average homeowner makes 2.3 home improvements when preparing to sell their home. At least 79% of homeowners complete at least one home renovation.
debt consolidation loan
Debt consolidation loans are used to pay off multiple debts. Examples include balances on credit cards, personal loans, or other types of debt.
Ideal for people looking to simplify their finances and pay off their loans faster
Debt consolidation allows people to refinance their debt by consolidating higher interest 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 individuals. Financial institutions are cut out as intermediaries. Many websites facilitate P2P lending between individual borrowers and lenders.
Ideal for people looking for alternative sources of loans
P2P loans are also known as “social loans” or “participatory loans” and are a relatively new alternative source of loans. P2P is ideal for people who want to avoid the paperwork of large financial institutions and access funds fairly quickly. P2P websites connect lenders with potential borrowers. Borrowers apply for a personal loan on the website and investors can select who they want to lend money to. Borrowers can receive P2P loans from multiple investors.
Payday loans are short-term, high-interest loans, usually due by your next payday in one lump sum. Currently, 37 states regulate payday loans due to high costs.
Ideal for people who need emergency cash and have no other options
Payday loans are usually $500 or less and payment is due on your next payday. Depending on state laws, people can get payday loans online or through a storefront lender. A typical two-week payday loan can have annual percentage rates (APR) as high as 400%. By comparison, credit card APRs can range from 12% to 30%. Payday loans should be considered a last resort.