A personal loan is a great choice if you need to borrow some money to pay for a home repair, buy a new appliance, or consolidate high-interest credit card debt. Qualifying is relatively easy, and there are few or no restrictions on what you can do with the money you borrow. But did you realize there are several different types of personal loans to choose from?
If you are considering applying for a personal loan, the following is an overview of your options to help you decide which type of personal loan is best for your needs.
1. Personal Loan
The standard personal loan is the most common loan that banks and credit unions issue. They are highly flexible and can be used for many different purposes.
Personal loans are usually unsecured, which means that no collateral is required. Some lenders, however, require collateral, such as your vehicle, savings account, or something else. Unsecured personal loans usually have higher interest rates than those that are secured.
Lenders will assess your financial history when evaluating you for a personal loan. Things they will consider include:
- Income
- Credit score
- Current debts
- Credit history
- Employment history
If you are approved for a personal loan, the funds may be available in one business day. Some lenders may also process your loan and disburse the funds the same day you apply.
Personal loans are very easy to manage. Interest rates are fixed, and you will make equal monthly payments until the loan is repaid. The simplicity and predictability of these loans help with budgeting.
2. Debt Consolidation Loan
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debt consolidation loan can be a lifesaver when you have several high-interest debts that are difficult to manage. Credit cards, store cards, title loans, payday loans, pawnshop loans, and others often charge significant interest on the money you borrow.
If you can only make the minimum monthly payments on your credit cards, for example, you may have difficulty paying down your debt. Because of the high interest, new charges will be added to the total each month, making it feel like you are on a hamster wheel that you can never get off of.
With a debt consolidation loan, you borrow the money you need to pay off your high-interest debts. The interest rate on your new loan will be much lower in comparison. You then make fixed monthly payments until your debt is eliminated.
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great thing about debt consolidation loans is that your financial history may not disqualify you from being approved. Because these loans are intended to help people recover from difficult financial situations, qualifying with an average or poor credit score may still be possible.
3. First-Time Borrower Loan
Everyone starts off in life without any credit history. But it’s vitally important to start building credit as soon as possible. Having good credit isn’t just about obtaining loans, it may also be checked to:
- Obtain a job
- Obtain utilities
- Rent an apartment
- Obtain cell phone service
- Get a good deal on your car insurance
Having an established credit history and a good credit score isn’t optional in the world we now live in. Because credit checks are so common, not maintaining good credit can hold you back.
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first-time borrower loan can help you establish a credit history to qualify for future loans and other things. The way these types of personal loans work is simple. You borrow a small sum of money and then repay it with fixed monthly payments over the following year. Your timely payments will be reported to the three credit reporting bureaus (Equifax, TransUnion, and Experian) to establish a credit history and credit score.
4. Personal Line of Credit
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personal line of credit differs from the other types of loans previously discussed. With a line of credit, you are given a credit limit that you can draw from as needed.
For example, if you are working on restoring an old car, you could draw the money you need to rebuild the engine. Later, you could draw some more money to paint it. You can repeat the process until the project is finished.
Personal lines of credit are similar to credit cards in how they work. To replenish your available credit, you pay back the money you borrowed. You can borrow and repay money as often as you like during the draw period (the time the line of credit is active).
Discover More About Various Types of Personal Loans
If you are considering applying for a personal loan, TEG Federal Credit Union offers all the loans mentioned in this article. Applying is easy, and you can do it either online or in person. It also doesn’t cost anything to apply, and there are no hidden fees.
If you’re unsure whether a personal loan is a good choice for your needs, the following article discusses several important reasons why these loans are so popular.
