Which Types of Personal Loans Will Help You the Most?

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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.

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?

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Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

RATES (APR)loan amount
5.99% – 19.16%1 $5,000 to $100,000
8.69% – 35.99% $1,000 to $50,000
7.99% – 35.97%* $1,000 to $35,000
99.00% – 199.00%2 $500 to $4,000
5.99% – 24.99%3 $5,000 to $35,000
7.99% – 29.99%4 $7,500 to $40,000
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NMLS #1136: Terms & Conditions Apply
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Fixed rates from 5.99% APR to 18.82% APR (with AutoPay). SoFi rate ranges are current as of March 19, 2020 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. 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 creditworthiness, years of professional experience, income and other factors. See APR examples and terms. 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. To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.
    See Consumer Licenses.
  3. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  4. If you lose your job through no fault of your own, you may apply for Unemployment Protection. SoFi will suspend your monthly SoFi loan payments and provide job placement assistance during your forbearance period. Interest will continue to accrue and will be added to your principal balance at the end of each forbearance period, to the extent permitted by applicable law. Benefits are offered in three month increments, and capped at 12 months, in aggregate, over the life of the loan. To be eligible for this assistance you must provide proof that you have applied for and are eligible for unemployment compensation, and you must actively work with our Career Advisory Group to look for new employment. If the loan is co-signed the unemployment protection applies where both the borrower and cosigner lose their job and meet conditions.
  5. 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 Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
2 Includes AutoPay discount. Important Disclosures for Opploans.

Opploans Disclosures

Direct Deposit required for payroll.

Opploans currently operates in these states: . *Approval may take longer if additional verification documents are requested. Not all loan requests are approved. Approval and loan terms vary based on credit determination and state law. Applications processed and approved before 7:30 p.m. ET Monday-Friday are typically funded the next business day.

  1. To qualify, a borrower must (i) be a U.S. citizen or permanent resident; (ii) reside in a state where OppLoans operates; (iii) have direct deposit; (iv) meet income requirements; (v) be 18 years of age (19 in Alabama); and, (vi) meet verification standards.
  2. NV Residents: The use of high-interest loans services should be used for short-term financial needs only and not as a long-term financial solution. Customers with credit difficulties should seek credit counseling before entering into any loan transaction.

  3. OppLoans performs no credit checks through the three major credit bureaus Experian, Equifax, or TransUnion. Applicants’ credit scores are provided by Clarity Services, Inc., a credit reporting agency.

  4. Based on customer service ratings on Google and Facebook. Testimonials reflect the individual’s opinion and may not be illustrative of all individual experiences with OppLoans. Check loan reviews.

  5.  

    Rates and terms vary by state.

3 Includes AutoPay discount. Important Disclosures for Payoff.

Payoff Disclosures

  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.
4 Important Disclosures for FreedomPlus.

FreedomPlus Disclosures

  1. The loan terms presented are not guaranteed and APRs presented are estimates only. To obtain a loan you must submit additional information and documentation and all loans are subject to credit review and our approval process. The range of APRs is 7.99% to 29.99% and your actual APR will depend upon factors including your credit score, usage and history, the requested loan amount, the stated loan purpose, and the term of the requested loan. To qualify for a 7.99% APR loan, a borrower will need excellent credit on a loan for an amount less than $12,000.00, and with a term equal to 24 months. Adding a co-borrower with sufficient income; using at least eighty-five percent (85%) of the loan proceeds to directly pay off qualifying existing debt; or showing proof of sufficient retirement savings, could help you also qualify for the lowest rate available. All loans are made by Cross River Bank and MetaBank®, N.A., Members FDIC.
* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

Personal loans made through Upgrade feature APRs of 7.99%-35.97%. All personal loans have a 2.9% to 8% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. For example, if you receive a $10,000 loan with a 36-month term and a 17.98% APR (which includes a 14.32% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $343.33. Over the life of the loan, your payments would total $12,359.97. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Accept your loan offer and your funds will be sent to your bank or designated account within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes the transaction. From the time of approval, funds should be available within four (4) business days. Funds sent directly to pay off your creditors may take up to 2 weeks to clear, depending on the creditor. Personal loans issued by Upgrade’s lending partners. Information on Upgrade’s lending partners can be found at https://www.upgrade.com/lending-partners/.

Published in Credit & Debt, Loans