A personal loan is one of the fastest-growing consumer debts. Most people take a personal loan in order to meet immediate cash requirements for some reason. It is a very good option if the particular person has a good knowledge of restructuring his finances using a personal loan. So are you one of those people who are looking to taking a personal loan anytime soon? There are different types of personal credits available in the financial market and it is very important for an individual to know the type of loan he should opt for. This is why we are going to explain different types of personal loans.
Types of Personal Loan
1. Unsecured Loan
This is a type of personal loan which does not require any kind of collateral. Hence, the land is ready to take the entire risk and of a sum of money to the borrower. However, this happens only if the borrower has a very good credit score. The borrower can take the loan and payback in monthly installments. A person can borrow anything between $1000 and $50,000 depending on his credit history. It is a great option if you are having a good credit score. The payback period is usually around 6 years or lower.
2. Secured Loans
These loans are given only if the borrower offers collateral. This means that the borrower will have to place collateral like his car or any other asset. Hence, the lender can recover the money in case the borrower defaults. This is a great option if you do not have a great credit history. Moreover, the interest rate is also very low in secured loans because the risk is comparatively lower for the lender.
3. Co-signed Loan
This loan is secured or unsecured. But it involves a third person as well. This type of loan is especially for those people who do not have a credit history. Hence, the third person becomes a guarantor. The guarantor can be any relative of the borrower and he pledges to repay the loan in case the borrower defaults.
4. Debt Consolidation Loan
a debt consolidation loan is a great option for those people who are you looking to restructure their finances. It is an option to manage all the loans in a single installment. Hence, the borrower can pay off their payday loans or any other loan taken from the family or friends and get them consolidated into one monthly installment. However, there are many pitfalls and it is suitable only for those people who are disciplined about their finances.
5. Personal Line Of Credit
A personal line of credit is a great form of personal loan which is very similar to the credit cards. It is very different from the other categories of personal loans. The borrower has a line of credit depending upon his credit score. This means that there is no need for monthly installment to the lender. Rather, users can borrow any amount of money and pay the interest only on the amount which is above the line of credit.