When people think of personal loans, they usually think of a banker in an office, approving a small loan of funds for your personal use. These are different from car loans or mortgages, and can be spent in any number of ways.
And while yes, this is true, the above scenario is simply one version of personal loans. A personal loan is really any loan issued to you for your personal use. That means that the term “personal loans” is somewhat interchangeable with several other terms.
Here is a quick breakdown of the different kinds of personal loans, and what they all mean to you, the borrower. Please note, that like borrowers, all lenders are different. Some loans are combinations of the following examples.
Signature Loans
These are also called “unsecured loans.” The name comes from the fact you do not need any collateral for this loan, you just need your signature. Higher risk for the lender means higher interest rates for the borrower. Credit cards are a great example of this.
Payday Loans
The most expensive way to borrow money, these loans (also called cash advances) are you borrowing against your next paycheck. They have the highest APR, and usually have a very small repayment window, only one or two weeks before the loan needs to be repaid in full.
Secured Loans
Using something you own to “secure” your loan will get you better interest rates and terms. This is because if you default on the loan the lender will take possession of your collateral. Mortgages and car title loans are both examples of very different kinds of secured loans.
Online Installment Loans
These new kind of personal loans offer fixed rates, at a higher level than bank loans, to offset their easy application process. These are one of the few kinds of personal loans that require no office visits, and can be done entirely online and over the phone.
Single Payment Loans
Also called a bridge loan or an interim loan, this unique form of borrowing is very short term, and expected to be repaid all at once at the end of that term.
Adjustable Loans
Are you feeling lucky? Then adjustable rate (or variable rate) personal loans may be right for you. These loans are risky for borrowers, because the initial interest rate can rise over time. The rate can also fall… but it never does.
Fixed Rate Loans
Almost all personal loans are fixed rate loans. It’s just the normal aspect of borrowing, where you agree to terms and rates, and then sign a contract to lock in those terms for the life of the loan.