Need a personal loan? Better yet…looking for the best personal loans, including rates and terms?
Before you start comparing personal loans, you should understand what personal loans are.
If you get stuck in a personal loan that puts you further in debt, it will suck.
There are two types of personal loans:
- Secured – Collateral needed
- Unsecured – No collateral needed.
A secured personal loan means you put up collateral.
You can use funds from a secured personal loan to:
- To get a mortgage
- Finance a new or preowned vehicle
- To pay for college or education expenses
- Pay for home remodeling, additions and repairs
An unsecured personal loan means you don’t put up any collateral.
You can use funds from an unsecured personal loan for several reasons.
- To pay off debt
- Medical expenses and procedures
- Pay for a wedding
- Pay for a vacation
- Pay for college and education expenses
Here are the main types of secured and unsecured personal loans:
Unsecured Personal Loans
Unsecured personal loans are the most popular choice for consumers. Unsecured loans do not need any collateral. Lenders check your financial ability to repay, including your debt-to-income ratio. Your credit score is a major factor. This loan is riskier to lenders. And you’ll pay a much higher interest rate vs. a secured personal loan.
But, this all depends on your credit history.
Typical interest rates: Low: 5% High: 36%
Payment Term Length: Shortest time: 1 year Longest time: 7 years
All lenders have special types of financing available. It depends on your loan needs and credit worthiness.
Let’s discuss a few of the most popular loans.
Small Personal Loans
Small personal loans are loans from $1,000 – $5,000.
If you have good credit and need money fast, this unsecured loan option may be a good fit for you. Small personal loans sometimes have a lower interest rate, which is good news for you.
Note: If you have bad credit, you’ll need to shop around. And in the event you get approved, you’ll pay an interest rate closer to 36% APR.
Despite this, there are lenders that will work with you. See further down the article for options.
Low APR Interest Personal Loans
This shouldn’t come as a shocker, but…
People with good to excellent credit scores will get the best rates and terms. You can sometimes find 0% financing offers, depending your purchase.
Note: People with bad credit will not qualify for the best rates and terms.
Debt Consolidation Loans
Have a mountain of debt piling up? Then a debt consolidation loan might be a good fit for you. A debt consolidation loan is for people that have more debt than they can repay.
Here’s how a debt consolidation loan works, in a nutshell.
- A debt consolidation company goes over your debt and finances with you
- They then negotiate on your behalf with creditors. They can often times get much better rates and terms–saving you thousands of dollars.
- Once they have negotiated, they will pay off your debt. Leaving you with one simple payment every month.
There are several advantages, as well as disadvantages to this. Be sure you read up on it.
You can read our guide on debt consolidation loans here.
Personal Line of Credit
This type of credit is “revolving credit”. It works more like a credit card rather than a loan. And your credit report will show this is a revolving line of credit, not a loan.
Here’s How a Personal Line of Credit Works
Banks and lenders approve you for the full amount, but you only use what you need.
If you need money in the future, you can use the balance of your credit line to fund your purchase.
And unlike a HELOC or home equity loan, you don’t need collateral.
Also, you only pay interest on the amount you withdraw, not the entire amount of your credit line.
This is often preferable to high-balance, high-interest rate credit cards.
If you think a personal line of credit is the way to go, be sure to shop around for the best rates.
Medical costs can be downright expensive. Especially when insurance doesn’t cover expenses and costs. In fact, a simple trip to the emergency room can cost upwards of $4,000 dollars.
That’s where medical loans come in.
If you have good to excellent credit, you can shop around and get the best rates. If you have bad credit, try to do the following:
Apply for CareCredit
CareCredit is a medical credit card you can use for almost any healthcare cost. It’s a credit card, with a total balance based on your credit worthiness.
Note: If you have good to excellent credit, you can skip this.
But if you have bad credit, you might want to explore this as an option.
Top reasons to get a medical loan:
- Cosmetic surgery
- LASIK vision correction
- Weight loss surgery
- Orthodontics (braces)
Credit Card Cash Advance
You should only use a credit card cash advance as a last resort. The interest rates and fees can be excessive. Most credit cards have higher interest rates for cash withdrawals.
Are you trying to further your education? Need a student loan to pay for your child’s college expenses? Then a student loan might be what you need. Student loans fall into two categories:
- Federal student loans
- Private student loans
Federal Student Loans
- Federal Stafford Loans: government provided loans. Provides a long-term loan, depending on your needs, with low interest rates. You’ll repay this loan 6 months after you graduate (with interest).
- Federal Plus Loans: depends on your credit score. They often have very low interest rates. The difference vs. Stafford loans is this. You begin making payments right after graduation.
- Federal Perkins Loans: reserved for families with low income. It also comes with low interest rates. This loan is ideal for students and families that have low wages. As with any loan, if you can’t make payments, it will hurt your credit score.
Private Student Loans
Have issues getting approved for federal loans? You might earn too much to qualify for a federal loan.
Private student loans allow you to get financing when federal programs fail.
Who funds private student loans?
- Major banks
- Credit unions
- Specialty finance companies
A private student loan requires good to excellent credit. You may even need a co-signer on the application.
Note: you’ll pay a higher interest rate with a private student loan. But sometimes, it can be your only course of action.
Secured Personal Loans
Secured personal loans use collateral to offset a lender’s risk.
On a mortgage, your home and equity are the collateral. On a car loan, the vehicle is the collateral. If you fail to make on-time payments, the lender has the right to take these assets away from you. Not mention, it will hurt your credit score in a big way. Interest rates for secured loans are much lower than unsecured loans.
Because you put up collateral, this eases the lender’s risk. And in the event you can’t repay, the lender has an asset they can sell to recoup their cost.
A car loan is a secured note, with the vehicle being the collateral. Borrowers with good to excellent credit scores will get the best rates and terms.
The loan term for vehicle financing is anywhere from 24 months up to 60 months. Sometimes, lenders may even go beyond this term depending on your credit. The longest period we’ve seen is 72 months.
Tip: The longer the term, the more you’ll pay in interest fees.
If you have poor credit, read up on our guide to bad credit auto loans.
Home Loans & Mortgage Refinancing
Searching for your next home can be fun and exciting. Determining how you’ll pay for it, not so much. Mortgages can be tricky and downright stressful. That said, here are the most popular types of mortgages you should become familiar with.
Fixed Rate Conventional Mortgage
Interest rate and principal payments are consistent. No fluctuation. Loan terms are 15 year and 30 year. Interest rates determined by the Fed’s current rate.
Adjustable Rate Mortgage (ARM)
Interest rate and principal fluctuate over time. Monthly payments not set in stone. A 5/1 means you’ll pay a set interest rate for the first 5 years. After, your payments will fluctuate up or down.
Guaranteed by the federal government. Often only need 3.5 percent or lower for a down payment. Also, FHA loans are more lenient with people that have bad credit.
USDA Rural Development Loans
Allows a borrower to buy a home without a down payment. You have to meant certain criteria to be eligible. You must be a low-income wage earner and the home must be in a USDA approved rural area.
Home Equity Loan
Allows you to borrow money against the equity in your home. But instead of a revolving credit, this loan is a lump sum of money. Lenders determine the loan amount based on the value of the property.
Note: You’ll need good to excellent credit to qualify for a home equity loan.
Tip: check your credit score for free to see where you stand.
Home Equity Line of Credit (HELOC)
This is like a home equity loan. But instead, it’s a revolving line of credit. The owner can borrow against the equity of the house (up to 80 percent of the home’s value)
Used when mortgage interest rates or monthly payments are too high. Refinancing could lower the interest rates and monthly payments altogether.
Note: The lender pays off the first mortgage, which allows them to create the second mortgage.
Home Improvement Loans
Home improvement loans are also unsecured. It’s used when you want to upgrade your home for things like:
- Remodeling a kitchen or bathroom
- Paying for a new roof
- Making room additions
- Installing a pool
- Making home repairs
Bad Credit Personal Loans
If you have poor credit, a bad credit loan may be your only option. In this section, you’ll find a few options to explore (and some to avoid).
Tip: Read our guide on bad credit loans here >>
Installment loans are short-term loans designed to repaid over a period of time. This “period of time” is set by your lender. Most lenders offer 3 months, 6 months and 12 months.
This is the exact opposite of payday loans, which have to be repaid by your next paycheck. More and more payday lenders are becoming “installment loan” providers.
That said, you’ll still see very high APR rates. Lenders charge anywhere from 200% APR up to 2,000% APR. The key here is to find a lender that offers the lowest interest rates.
Payday Loans (Predatory Lending)
Payday loans are small loans designed to be repaid by your next payroll period. This type of loan is super risky…
Payday loans have insane interest rates. Lenders charge upwards of 500% APR…and sometimes much more. Now, if you repay the loan back by your next paycheck…it’s not too bad.
But if this loan rolls over into the next month (and beyond), the interest will continue to stack up. This is how many consumers end up in payday loan debt.
Tip: Steer clear of payday loans.
Read our guide on payday loans here >>
Car Title Loans
What’s worse than payday loans?
Title loans are short-term, high interest rate loans. They use your your free and clear car title as collateral.
Not to mention, the interest rates will kill your wallet. And what happens if another emergency comes up and you can’t repay the loan?
Answer: the lender will repossess your vehicle and sell it at auction.
Tip: Try to never use auto title loans.
Loan sharks are predatory lenders. They prey on low-income families by offering insane interest rates.
Loan sharks are illegal and are not governed by rules and regulations.
They make up their own rules. In fact, interest rates from a loan shark can be as high as 1,721%. Loan sharks don’t need debt collectors. They are the debt collector. And sometimes, what they do to collect debts ain’t all that pretty.
- Harassment via phone, online and even at a person’s home
- Threaten you with bodily injury or harm
- Threaten family members
Bottom line: Loan sharks are illegal and dangerous.
Guaranteed Personal Loans
Guaranteed personal loans aren’t “guaranteed” in the way you think. If you have poor credit, your chances of approval are very slim.
That said, guaranteed personal loans aren’t available to people with bad credit.
Tip: Find an installment loan with low interest rates from a reliable lender.