May 28, 2022

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9 Types of Personal Loans to Fit Your Needs

Unsecured personal loans

An Unsecured personal loan is not secured by any collateral. As a result, unsecured loans are a higher risk for financial lenders. Lenders typically require a higher credit score to qualify for an unsecured loan. Common examples are credit cards and payday loans. Here are more types of unsecured loans.

Home improvement loan

Home improvement loans pay for home renovations. Examples include a kitchen or bathroom remodel or home repairs.

Best for people looking to add value to their home

Home improvement projects can increase your enjoyment of your home and also add value when you sell your home. According to the Zillow Group Consumer Housing Trends Report 2020, the average homeowner makes 2.3 home improvements when preparing to sell their home. At least 79% of homeowners make at least one home improvement.

Debt consolidation loan

Debt consolidation loans are used to pay off multiple debts. Examples include balances on credit cards, personal loans, or other types of debt.

Best for people looking to simplify their finances and pay off loans faster

Debt consolidation allows people to refinance their debt by consolidating higher-interest rate credit cards and other debt to one payment with a potential lower interest rate. This can help lower the total interest paid over time and simplify their finances by making one payment instead of multiple payments.

Peer-to-peer lending

Peer-to-peer (P2P) loans are loans from other individuals. Financial institutions are cut out as the middleman. Many websites facilitate P2P loans between individual borrowers and lenders.

Best for people looking for alternative sources of loans

P2P lending is also known as “social lending” or “crowd lending,” and is a relatively new alternative source of loans. P2P is best for people who want to avoid the red tape of large financial institutions and get access to funds relatively quickly. P2P websites match lenders with potential borrowers. Borrowers apply for a personal loan on the website and investors can select who they want to lend money to. Borrowers can receive P2P loans from multiple investors.

Payday loans

Payday loans are short-term high-interest loans typically due by your next payday in a single amount. Currently, 37 states regulate payday loans due to high costs.

Best for people who need emergency cash and don’t have other options

Payday loans are generally for $500 or less, and repayment is due on your next payday. Depending on state laws, people can get payday loans online or through a storefront lender. A typical two-week payday loan can have annual percentage rates (APR) as high as 400%. In comparison, credit card APRs can range from 12% to 30%. Payday loans should be seen as a last resort.