Which Type of Personal Loan is Best for You?
Yes, approximately 63% of Americans are one paycheck away from financial ruin!
If you're reading this, that information may come as no surprise to you. As job security supposedly rises, the rate of Americans able to squeeze pennies into a savings account continues to dwindle.
Sometimes, we need other alternatives in tough situations.
Enter the personal loan.
It's a grand idea, you say, but there's no way you'd get approved.
Au contraire, my friend! You may be surprised. However, there are different types of personal loans that apply to various situations.
Let's find out which type is right for you.
A Word About Credit Score
Bad credit score?
Don't worry; you're among many others. In fact, America's debt was at a staggering $764 billion in 2017's first quarter.
Times are tough, and sometimes we need a little extra boost.
Think of it as finding a Yoshi to ride in Super Mario World, except you can't abandon it when you're about to fall to your doom.
FICA credit scores have a range between 300 and 850. A score at or below 550 is considered in the red zone.
If you're worried you won't be able to snag a loan with a bad credit score, relax: you can, but your options will be much more limited.
We'll give you all the details when we discuss loan types.
Before taking out a personal loan, make sure you have researched it thoroughly. Interest rates and terms will vary depending on the type of loan and the institution providing it.
Likewise, never take out more than you need.
Types of Personal Loans
Most personal loans are unsecured (no, that doesn't mean they're free for the taking). Unsecured loans do not allow a company to repossess collateral, such as cars or houses.
Yes, those poor souls we used to watch on Dog the Bounty Hunter had taken out secured loans, meaning their goodies were up for grabs when they couldn't pay.
Which, again, is why research is important.
Here, we'll lay out all the different types for your personal pleasure.
And, no, you won't have to sell a kidney to get them.
1. Installment Loans
Commonly referred to as unsecured personal loans, these loan types come with a higher interest because they are not secured. Therefore, if you default on the loan, the company can't abduct your firstborn and demand payments.
With installment loans, your interest rate will be determined by your credit score and past payments. They may be fixed rate (meaning the interest will not change through the duration of the loan) or variable rate (meaning you'll see that percentage jump down or up and up again).
These loans are best for individuals who have an acceptable to great credit score.
Another advantage of unsecured personal loans is that you are free to use the money on anything you need.
Like eyeglasses. Or a pulled tooth. Or (let's get crazy) your kid's birthday present.
2. No-Credit-Check Installment Loans
For those with bad credit, don't despair. Many institutions will offer installment loans . . . but expect disgustingly high rates.
Institutions won't bother to check your credit score, but the rates on these can be as high as 100% or 200%.
All you typically need is a bank account and no history of bankruptcy.
This is where the robot in Lost in Space would wave its arms and shout "Danger, Will Robinson! Danger!"
If you take out this type of loan, go for a small amount that can be paid back quickly.
3. Secured Personal Loans
Yes, these exist.
Some banks will offer secured personal loans to citizens.
Proceed with caution here. If you sign a secured personal loan and can't pay it, you have to cough up whatever collateral you and the bank agreed upon.
However, these types of loan are great for anyone with low credit or for those who need large sums of money.
They can also offer much lower interest rates.
4. Line of Credit
Similar to a credit card, a line of credit provides a loan that is approved ahead of when you actually need it.
This may sound bonkers, but it comes in handy for those who need money for a long duration, are unsure what amount will be necessary or are simply looking for supplemental income in uncertain situations.
Using a line of credit, the loan holder is able to borrow up to the agreed amount as they need it.
Interest rates here are generally higher.
5. Credit Cards
Yes, credit cards are also considered a personal loan. What'd you think you were borrowing, flowers?
Credit cards come in practically every rate imaginable, so potential holders can apply to ones that strike their fancy.
Payments are determined by the balance on the card and the interest rate. They can be fixed or variable in nature.
Again, that research is necessary. Just saying.
6. Credit Card Cash Advances
If you have a credit card, you may have noticed the bank offering a convenient credit card cash advance.
This allows you to take out cash (usually through an ATM) in amounts up to whatever balance remains on your card.
Be leery here. While they may sound convenient, these advances usually come with tricksy fees and higher interest rates.
7. Payday Loans
Also referred to as cash advance loans or short term loans, these are viable options for those with bad credit.
Usually, they are paid by taking money directly out of your paycheck.
Payday loans are generally for smaller amounts, do not require a credit check and do not report on-time payments.
However, they are becoming more difficult to obtain. Also known as as cash advance.
Get Yourself Some Green!
Folks, we mean money.
When you're ready to take out your loan, check out our 10 essential tips every new loan holder should consider.
Many people feel confused and downtrodden when reviewing the many types of personal loans, but just remember: everyone needs help now and again to get back on their feet.
View this as an opportunity to increase your credit score or to finally get that vacation you've drooled over for 10 years. Do your research, create a payment plan and shoot for the stars.