Which Types of Personal Loans Will Help You the Most?

types of personal loans

There are many different types of personal loans out there, and some will be a much wiser pick than others. The different combinations of costs, repayment terms, and loan structure can make your loan a financially smart or harmful choice.

Of course, the personal loan types that are best for you will depend on your own circumstances. With this list of 10 common types of personal loans, you can compare choices and see when each makes sense.

Secured vs. unsecured personal loan

Whether a personal loan is secured or unsecured refers to whether there is collateral tied to the loan. With collateral, the borrower attaches an asset they own to a loan to guarantee its repayment. If they should fail to make payments, the lender has the right to take ownership of the collateral.

A common form of a secured personal loan, for example, is a title loan. For title loans, the title of the borrower’s car serves as collateral. If they should fail to repay, the lender may repossess the car.

The collateral that guarantees a secured personal loan lowers the risk to a lender that a borrower will default. Because of this lower risk, secured personal loans often have less-strict credit requirements. A secured loan will also typically carry lower rates than a similar unsecured personal loan.

An unsecured loan, on the other hand, has no collateral attached to the loan. This makes it a riskier option for the lender. This risk is often offset by stricter lending guidelines and higher interest rates.

How to choose:

If you have less-than-ideal credit, you’ll probably have an easier time qualifying for a secured personal loan. These types of personal loans can also be a smart choice if saving on interest is a top priority, since secured loans tend to carry lower rates.

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On the other hand, an unsecured personal loan doesn’t require that you have an asset to use as collateral. It also won’t put any existing assets at risk of repossession, should you default on the loan.

Variable-rate vs. fixed-rate personal loan

Every personal loan has an interest rate that indicates how much the borrower will have to pay in exchange for borrowing money. There are two main personal loan types when it comes to interest: fixed or variable.

A fixed-rate personal loan has an interest rate that remains the same throughout the life of the loan. The lender does not have the right to raise the interest rate. This means the borrower will always know what they will be paying and monthly payments will never go up.

With a variable-rate personal loan, however, the interest rate can change over time to match the overall credit market. If interest rates go up for banks and lenders, then a personal loan’s variable rate will also be adjusted up.

If a variable interest rate goes up, this also raises the monthly payments on the loan and the total interest the borrower will pay. However, variable-rate personal loans often have initial rates below what is offered on a fixed-rate loan.

How to choose:

If you want steady payments that don’t change, a fixed-rate personal loan is the way to go. This option can also protect borrowers against interest fluctuations. This can be especially beneficial for longer repayment periods.

A variable interest rate, however, can save you money in the short-term. It might be a better option for a small loan or a loan you plan to pay off early.

Installment vs. single-payment personal loan

With an installment personal loan, a borrower receives the money in one lump sum and then repays it in regular (usually monthly) smaller payments. A borrower will also likely pay less interest, as each payment will reduce the principal and lower the amount upon which interest is charged.

A single-payment personal loan, on the other hand, requires the borrower to repay the loan plus interest in a lump sum at a set date, when the loan matures. These types of loans are also sometimes called single-payment notes.

Single-payment loans are not offered as widely as installment loans, so finding a lender offering these types of personal loans could be tricky.

How to choose:

A single-payment personal loan is usually only a good idea if you’re confident you can repay the full loan plus interest at maturation. It can be used to borrow if you know you’ll be getting a large payment at some point, such as a year-end bonus or inheritance, but need cash now.

Installment loans, on the other hand, are more widely available and tend to be much easier to keep up with. Early or extra payments are also typically accepted on a personal loan. If you want greater flexibility to repay your loan, a personal loan is likely the better choice.

Traditional vs. peer-to-peer personal loan

A recent development in the world of personal loans is peer-to-peer lending. With traditional personal loans, a bank or conventional lender funds the loan and a borrower repays that institution.

With peer-to-peer lending, loans are financed by real people instead of financial institutions. Individual lenders might be able to take on a little more risk, so credit requirements for peer-to-peer loans are usually more flexible.

Online companies like Lending Club and Prosper facilitate the loans between individual lenders and borrowers, usually charging a percentage-based fee to do so. This origination fee can be as much as 5% of the loan amount, which can add a substantial cost to a loan.

How to choose:

A peer-to-peer loan might be a favorable option for a borrower who would have trouble qualifying for a traditional loan. You’ll probably need decent credit, but it can be a more flexible option than a secured loan.

A good reason to choose a traditional lender, however, is to avoid the origination fee charged on peer-to-peer loans. While peer-to-peer lending has this costly fee, it will be much easier to find personal loans without it.

Payday vs. long-term personal loan

The last types of personal loans are long-term loans and payday loans.

Typically, a long-term loan is just a traditional personal loan that has a repayment period of 60 months or more.

This longer repayment period comes with lower monthly payments, but a longer repayment period usually results in higher interest rates and increases total costs over the life of the loan. Borrowers will also be stuck with this debt for a longer time.

A payday loan, sometimes called a cash advance, has a repayment term of less than a month — typically 14 days, according to Debt.org. These kinds of loans also carry exorbitant interest rates, sometimes as much as 200% or even 500%. Because of that, these loans are rarely advisable. Read more about the risks here.

How to decide:

Payday loans are almost never a smart choice, since the high-interest rates and short repayment periods can quickly trap consumers in a debt cycle. Borrowers considering a payday loan might instead try peer-to-peer lenders or online lenders, which might offer fast funding and shorter repayment periods.

Long-term personal loans will have much more favorable terms. With lower monthly payments, this type of loan can affordably finance expensive purchases.

Whether you’re looking to consolidate debt or cover an emergency expense, a personal loan can help do that. However, these debts shouldn’t be taken lightly. Research different types of personal loans and compare your options.

Choosing a cost-conscious and affordable personal loan will help you get the credit you need without hurting your future finances.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal LoansFixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 4.98% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 21, 2017 and are subject to change without notice. Not all rates and amounts available in all states. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 4.98% APR assumes current 1-month LIBOR rate of 1.34% plus 3.89% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.39% - 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
4.98% - 14.24%1$5,000 - $100,000
Check rate nowon SLH's secure site
8.00% - 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
5.99% - 16.24%2$5,000 - $50,000Visit Citizens
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.25% - 14.24%$2,000 - $50,000Visit Earnest
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