Life sometimes throws us a curveball and we find that we may need a little extra money. Luckily, there are a number of different types of personal loans available to help you through difficult times. Banks and other lenders offer personal loans anywhere from a few hundred to thousands of dollars* that you will repay over time, usually between one and five years*.
Determining which type of personal loan is best for your situation can be a big decision. To help, we’ve compiled a “cheat-sheet” explaining the types of personal loans available so you can make the best choice for your financial journey.
What is a Personal Loan?
You may be asking, what is considered to be a personal loan? A personal loan is a loan that allows you to borrow money to cover a variety of uses. Some examples may include a car repair, emergency medical expense, or a home improvement project. These loans have a short to moderate-term repayment period and you can typically get the funds quickly.‡ There are two main types of personal loans, secured and unsecured loans.
What is a Secured Loan?
Secured loans require some sort of backing by collateral, which can be seized, or taken, by the lender if you do not repay the loan. Some examples of collateral can include a house, car, or boat. Some lenders allow borrowers to secure these loans with a personal savings account or other valuable asset. Typically, secured loan rates are lower than unsecured because they are considered less risky for lenders.
What is an Unsecured Personal Loan?
Unsecured personal loans, on the other hand, do not need to be backed by collateral. These loans typically have a higher annual percentage rate, or APR, since they are riskier for lenders to offer.
When it comes to unsecured personal loans, factors like the borrower’s credit score help to determine the amount they can borrow and the repayment rate. The better your credit score, the lower your rate will typically be. It is still possible to get an unsecured loan with a less than ideal credit score.
There are a number of unsecured personal loan options offered through Avant.
What is a Fixed-Rate Loan?
Fixed rate loans are a type of loan where the interest rate does not change during the period of the loan. This helps the borrower to budget better and can be ideal for those looking for a consistent payment each month. Many personal loans offer fixed rates but be sure to verify the terms of the loan with your lender.
There are a few different unsecured personal loan options, including Home Improvement Loans, offered through Avant.
What is a Variable Loan?
Variable-rate loans, on the other hand, don’t have a fixed interest rate. The rate on the loan fluctuates during the life of the loan. This is because it is tied to a benchmark rate that is set by your lender. When this benchmark rate changes, the rate on your loan, as well as your monthly payments and total interest, can increase or decrease. While the constant change in rates may seem like a drawback, the benefit to variable-rate loans is that they typically carry lower APRs versus fixed-rate loans. Lenders may also cap how much your rate can change over a period of time and life of the loan.
If you are looking for a loan with a short repayment term, a variable-rate loan may make sense since rates may not surge in the short-term.
What is a Debt Consolidation Loan?
If you carry multiple debts, one option is to use a loan to consolidate everything into one simple monthly payment. A debt consolidation loan can be easier to manage and pay off over time. These types of loans are typically unsecured personal loans. An advantage of a debt consolidation loan is you can use it to pay off credit cards, which can increase your credit utilization score.
However, one thing to consider with debt consolidation loans is that you will free-up your credit line on your credit card. Be sure to keep your credit card spending in check to avoid adding more debt to your plate!
What is an Installment Loan?
Installment loans are a type of loan where you borrow a set amount of money and then repay the loan over a fixed number of payments, or installments. When a borrower pays these installments, they repay a portion of the principal amount borrowed and a portion of the interest on the loan. Typically, the installment amount remains the same throughout the loan term. The advantage of installment loans includes more flexible terms and a lower interest rate, but check with your lender for the full terms. Examples of installment loans include auto loans, personal loans, and student loans.
Checking your personal loan options does not impact your credit score.
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*Avant loan amounts range from $2,000 to $35,000. APR ranges from 9.95% to 35.99%. Loan lengths range from 12 to 60 months. Administration fee up to 4.75%.
* If approved the actual loan amount, term, and APR amount of loan that a customer qualifies for may vary based on credit determination and state law. Minimum loan amounts vary by state.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33.
†The decision process may take longer if additional documents are requested. Approval and loan terms will vary based on credit determination and state law.
‡ Funds from Avant are generally deposited via ACH for delivery next business day after approval if approved by 4:30pm CT Monday-Friday.
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