6 types of small personal loans
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Getting a small personal loan can be a good borrowing option if you are someone who only needs a small amount to achieve your financial goals.
Here are six different types of small personal loans that you can use to cover a variety of expenses when you’re short on cash.
1. Unsecured Personal Loans
Good for: People with higher credit scores
With an unsecured Personal loan, you borrow a lump sum of money up front and repay it in fixed installments over an agreed period of time. The main advantage of taking out an unsecured personal loan is that you do not need to secure the loan with collateral. This means that the lender cannot seize any of your assets if you fail to repay the loan.
The downside is that the interest rate you receive is strongly tied to your credit score. So if you have bad credit, you’ll likely pay a higher interest rate.
Visit Credible for view your prequalified personal loan rates from various lenders, all in one place.
2. Secured Personal Loans
Good for: People who work on their credit
If you can’t qualify for an unsecured personal loan, a secured personal loan is a solid borrowing option. As with unsecured loans, you will receive an initial sum which you will repay in fixed installments. Unlike unsecured loans, secured loans require you to provide collateral, such as a car, money in a savings account, or certificate of deposit. If you do not honor the loan, you risk losing this guarantee.
But if you have bad credit, the constitution of guarantees can facilitate the obtaining of a personal loan. As a bonus, making on-time payments on a secured personal loan can be a great way to improve your credit score.
3. Debt consolidation loans
Good for: People who have multiple high-interest debts
A debt consolidation loan is a type of unsecured personal loan designed to help you streamline multiple sources of debt into one loan. This can simplify the debt repayment process, as you will only have one lender to make payments to, one due date per month, and one interest rate. If you have improved your credit score since you applied for the original debt, you may be eligible for a lower interest rate on a new loan. If this happens, you can save money on paying off your debt and have lower monthly payments, which can make it easier to make extra payments and pay off your debt faster.
The downside to debt consolidation loans is that there’s no guarantee you’ll get a lower interest rate, so it’s important to shop around for the best deal.
4. Ready to buy now, pay later
Good for: Individuals who are looking for an inexpensive way to spread out an expensive purchase
Buy now, pay later loans are a type of installment loan you can use to make purchases at participating retailers. You can make a purchase with no upfront payment or with a small upfront payment and then pay off the remaining balance in a few payments (usually four or less).
The advantage of these loans is that the approval process is quick and easy. But the downside is that if you miss a payment, you’ll likely be charged late fees.
Good for: People working together towards a financial goal
When you apply for a joint personal loan, you are applying for a traditional personal loan, secured or unsecured. The difference is that you apply with a co-borrower (also called a co-applicant). With joint personal loans, both applicants share equal responsibility for loan repayment.
It may be easier to qualify for a joint personal loan because you are bringing two incomes to the table instead of one, which may result in a lower interest rate and potentially higher loan amount . The main disadvantage of a joint personal loan is the belief that the co-borrower will make the payments as agreed. It’s important that you both have a plan in place to pay off the loan on time to avoid fees and damaged credit scores.
If you’re ready to apply for a personal loan, visit Credible for quick and easy compare personal loan rates from various lenders.
6. Personal lines of credit
Good for: People who want flexibility in the amount they borrow
You can apply for a personal line of credit from a bank or credit union. A line of credit works similar to a personal loan in that you can use it to cover a variety of purchases. But it’s also similar to a credit card: you can borrow up to the approved amount on a if needed, but you don’t have to borrow your full credit limit all at once. This means that you will only have to pay interest on the amount you borrow.
Lines of credit are sometimes secured, which means you risk losing collateral if you don’t make your payments on time. Another downside is that lines of credit can come with annual fees, so be sure to read the fine print before signing one.