There are all sorts of financial challenges that life can throw our way. An unexpected medical bill, a job loss, or a home repair can leave us scrambling to come up with the money we need. Fortunately, there are personal loans available to help us through these tough times. Here are six types of personal loans that can help you overcome financial challenges:
Unsecured Personal Loans
Many personal loans are often unsecured, meaning you don’t need to offer any collateral or physical asset to back up the loan. A solid credit history and that of your guarantors are what back you for a loan. If you fail to repay the loan, the lender does not take away your assets from you, but it negatively hurts your credit score. Typically, a good credit score falls within 670 and 739 or higher.
If you already have a poor credit score and aren’t eligible for personal loans, you may consider other loan alternatives. They include ODSP payday loans, credit cards, savings, and home equity lines of credit.
Secured Personal Loans
Secured loans are installment loans that require you to back them up with collateral, such as land, car, building, savings account, and other assets. If you default on the loan, the lender can take your collateral assets and sell them to cater to the loan.
Since secured loans are often less risky for loan lenders, their interest rates are often less than unsecured loans. In addition, loan lenders tend to be more flexible in regard to credit score requirements, increasing the chances of getting a personal loan even with a bad credit score.
Fixed-Rate Personal Loans
In most cases, personal loans offer a fixed rate. That means the interest rates for the loan remain the same, together with the monthly payment. What’s best about this fixed rate is that you get to know the amount of money you will pay each month. Through that, you can plan for it to fit into your budget.
You can tell in advance the amount of interest you need to pay, depending on the life duration of the loan. Before you apply for the loan, consider using a personal loan calculator to generate an estimate of your monthly installments.
Debt Consolidation Loans
You can use debt consolidation loans to settle outstanding debt balances faster to save on interest. The idea behind this personal loan type is that you get a loan with minimal interest compared to the debts you wish to consolidate. You can then use the loan proceeds to clear outstanding debt, and you now start paying for the new loan product for a specified period.
A cosigned loan can be a secured or unsecured loan involving one or more parties guaranteeing repayment of the loan. If you lack credit history or have a bad credit score, the lender may request you to find a cosigner who can pay the loan on your behalf if you default. The consigner acts as insurance for the lender and increases your chances of getting approval and better terms for the loan.
Adjustable-Rate Personal Loans
With adjustable-rate personal loans, interest rates change over time instead of remaining constant forever. Typically, the interest rate starts low, but after a specified time, it may gradually rise, depending on market conditions.
While caps are often in place to ensure you do not exceed a particular interest amount, you may get stuck with unpredictable monthly payments and a higher rate. For that reason, take an adjustable-rate loan type if you can pay it quickly.
Many types of personal loans exist today to help you overcome financial challenges. Before you settle for any loan type, ensure you do proper research while comparing quotes from several lenders to find the best suit.