A personal loan is the most simple and straightforward way of raising funds. Individuals who need urgent cash or need to make a big spend tend to opt for personal loans. In a personal loan, you receive money from the bank or the financial institution and the same is to be repaid in equal installments over the tenure of the loan. However, not many are aware of the different types of loans available in the market.
Types of personal loans
Unsecured loans : Majority personal loans are unsecured loans. The lenders charge a higher rate of interest as well as fees for the same because the loan is not backed by a collateral. This increases the risk and hence, quick unsecured personal loans carry a higher charge.
Secured loans: As against unsecured loan, a secured loan has a collateral like a mortgage and this reduces the risk associated with the loan. In this case, the interest and fees will be slightly lower. You can get access to funds without having to pay any fees or without having to sell your asset.
Fixed rate loans: Most of the personal loans carry a fixed rate of interest. This means the interest remains the same throughout the period of the loan.
Variable interest loans: As against fixed interest loans, the variable interest loans carry a varying rate of interest over the tenure of the loan. Such loans are found in a line of credit offered by certain lenders.
Line of credit: There are two types of lines of credit offered by lenders- secured and unsecured. A secured line of credit is offered by banks to certain customers who meet their requirements and these include having more than a specific amount in your bank account. You will not need a collateral for the same. One of the most common form of line of credit is a home equity loan. It is backed by a house and carries a variable rate of interest.
Debt consolidation loans: A lot of people opt for a personal loan in order to consolidate debt. Debt includes everything from personal loans, credit card, medical expenses to payday loans. The idea behind the same is to merge all the loans into one and pay a single rate of interest. The loan can be handled by making one payment each month instead of making multiple payments. However, debt consolidation loan is not meant for everyone. You will have to sit back and think of the ways in which you will be able to make the loan payments otherwise you could only be buried in a pile of debt.
Getting a personal loan is easy and convenient but you need to make a well informed decision about the same. Do not apply for a loan for every expense you need to incur and choose a reliable and trustworthy lender for the purpose of borrowing. With a reliable lender, you will benefit in the long term and your payments will be on time.