What Type of Personal Loan is Best for Me?

Imagine reaching your financial goals, taking a vacation, or having the wedding of your dreams. Personal loans can consolidate debt, finance a home renovation or pay for medical expenses, and many other purposes. These short-term loans are versatile, flexible, and applying is easy. 

With so many types of personal loans, which is best?  We’ll show you the most popular personal loans and how they can help you reach your goals.

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Debt Consolidation Loans

Debt relief is stress relief. If you’re not making progress paying off high levels of credit card and other unsecured debt, a debt consolidation loan might be a good loan option. Instead of multiple payments and different due dates, it’s all rolled into one manageable monthly payment. 

What debts can be consolidated?

All unsecured debt can be consolidated. Car, boat, home, and government loans cannot be consolidated. Any IRS debt or back taxes are also excluded from debt consolidation loans. Talk with a loan specialist to make sure your debt qualifies. If you’re looking to better understand the options for debt consolidation, locate a credit union for personalized help.

Personal Line of Credit

A personal line of credit allows you to borrow up to your maximum limit (your financial institution will approve the limit), repay the funds, and borrow again if needed. A line of credit operates like a credit card. You can borrow and pay it off over and over again. You will pay interest on the amount that you borrow.
Other benefits include:

Personal lines can offer flexible borrowing options, but qualifying may be more difficult if you don’t have a good credit history. If you’re late or miss a payment, this will have the most significant adverse effect on your credit score. When taking out a personal line of credit, be sure to borrow only what you can comfortably pay back.

Unsecured Personal Loans

Unsecured loans don’t require any collateral, and because of this, lenders find them risky. Collateral is considered an asset like a house, car, boat, or cash. Collateral protects the lender. If you don’t pay, the lender can seize the asset to compensate. Instead, a borrower’s creditworthiness will be a big factor in determining if they get the loan. Most unsecured personal loans require a high credit score.  

Examples of unsecured loans:

Share Secured Loans and Credit Cards

Most credit unions offer share-secured loans and credit cards which use funds in your accounts to secure the loan. This is often a great way for consumers to both establish their credit and/or build a positive credit repayment history if trying to increase and improve a credit score. Secured personal loans are the reverse of an unsecured loan. Collateral is needed in order to back the loan. Stocks, bonds, and personal property can be used as collateral. When a borrower puts up collateral, it is a way to make sure that the loan will be paid back. Secured loans include: 

Short-term Personal Loans

Traditional loans can take years to pay back. A short-term loan is paid back within a year or two, and shorter terms are available. Most have no prepayment penalty and are less expensive than a payday loan. If your credit is less than perfect, a short-term loan might be an excellent option. 

Fixed-rate Loans

With a fixed-rate loan, the interest rate remains the same throughout the life of the loan. Fixed-rate loans deliver stability; borrowers are protected from changes in payment if interest rates rise. Month to month, you’ll have the same payment. Types of fixed-rate loans include:

Some fixed-rate loans come with a break cost or break charge. The break cost of a loan is a fee that lenders can charge if you pay off the loan before the end of the fixed-rate term noted in the contract. A break cost can add up to thousands of dollars if you pay your loan off early. This penalty doesn't apply to variable-rate loans. Talk with a loan expert to understand all the fees associated with this type of loan.

Variable-rate Loans

Variable-rate loans are just like they sound. The rate of interest charged on the balance varies. Variable-rate loans are tied to a financial index, and risk is involved. If variable rates rise too much, you could have significantly higher payments. Variable-rate loans are found in: 

Cosigned Loans

A cosigned loan guarantees that the co-signer will pay the debt if the primary borrower misses a payment or defaults. With a cosigned loan, the co-signer holds all the risk. The co-signer has no property ownership or title but must pay the loan in full if the borrower defaults entirely. Late payments or defaults will impact the co-signer’s credit score. Think carefully before committing to be a co-signer. Cosigning a loan is a lot like gambling. Only cosign what you can afford to lose. 

Read about "What You Need to Know About Personal Loans."

Further Resources on the Types of Personal Loans

Here are some credible resources on types of personal loans:

Choosing the Right Loan for You

When choosing the right loan, it’s essential to know where you are financially. Knowing your credit score can help in narrowing down options. Before applying for any loan, be sure to read all the fine print for fees and rates. Accepting a loan can significantly impact your future finances and overall financial fitness.

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Did you know?

Credit unions are known for offering competitive rates and flexible terms on personal loans. These loans can be used for a variety of purposes, such as consolidating debt, financing a large purchase, or covering unexpected expenses. Credit unions typically offer lower interest rates on personal loans, which can save borrowers money over the life of the loan. Additionally, credit unions may be more willing to work with borrowers who have less-than-perfect credit, providing them with access to much-needed funds.

Find the right Credit Union for you

There are more than 5000 credit unions to choose from across the U.S.