Personal loans are given out to people who want to avail an unsecured line of credit, since they have no collateral to put up and hence cannot avail regular loans. Most types of personal loans do not require collateral as security and the promise to repay money is the only assurance for the loan taken.
There are a number of things that you should take into account before applying for a personal loan among the multiple sources available to choose from. A thorough research of the lender, the interest rates at which the personal loan is being offered at and terms of condition of the loan will help you get the best deal.
Listed below are the different types of personal loans:
Personal loans are generally divided into two categories namely unsecured and secured loans.
Unsecured loans: Unsecured loans, as the name suggest, do not require any collateral security for the loan taken. Banks and financial institutions will generally not deal with a lot of unsecured loans since the only guarantee that the loan will ever be repaid is on the basis of the promise made by the borrower. Unsecured loans and short terms credits are generally given by individuals, credit unions, and third-party credit sources. However, the interest rate will be higher and to some extent even exorbitant.
Fixed rate personal loans: Normally personal and unsecured loans will have varying rates of interest, since there is no specific guarantee that the loan amount will be repaid back in time. the risk factor for the lender is higher and this drives up the rate of interest. However, in case of fixed rate as the name suggest, the rate of interest will not vary for the duration of the loan taken. The lines of credit in this case will have variable rates.
Variable rate personal loans: A schedule or clause in the agreement or contract for the loan taken will allow the interest rates to fluctuate, with some that carry a cap limit as to how much the interest rate can fluctuate. It is very important to verify the rate of interest, fluctuation caps, and the terms of variable rate personal loans before taking up the loan.
Lines of credit: A line of credit is a different borrowing system which allows you to use the available line of credit, which will be different for every borrower. Line of credit options generally include secured and unsecured options.