The average American is over $90,000 in debt. Between student loans and mortgage payments, it’s easy for a person’s bills to get out of control.
If you find yourself becoming overwhelmed with your expenses, you might be able to get yourself caught up by taking out a loan.
One of the biggest issues of getting the funding you need is researching the different types of personal loans. If getting the lowest interest rate possible matters the most to you, and you don’t mind putting something up for collateral, a secured loan might suit your needs.
Debt consolidation loans will allow you to combine all your debt into one big bill. Unsecured loans don’t require you to put anything up for collateral.
These are only a few options to choose from. Continue reading for a complete list.
Table of Contents
1. Unsecured Loans
Nine times out of ten, when you apply for a loan, it’s unsecured. These loans don’t require you to put your car or home up for collateral.
If you default on the loan, the lender can sue you for the entire amount or send your account to a collection agency.
Since unsecured loans are riskier for lenders, you’ll need to have a good credit score and steady income to qualify. There are unsecured loans that are geared toward those with lower credit scores, but they often come with hefty interest rates.
If you’re approved, you’ll receive the full amount of the loan in one lump sum. You’ll pay it back in installments over the course of a set number of months.
2. Secured Loans
The biggest downside of secured loans is that they require you to put something up for collateral. If you can’t make your payments, you’ll lose your home or car.
If you need cash in a hurry, secured loans are easier to get. Since lenders can resell the item you put up for collateral if you default, giving you the money you need is less risky for them. You won’t need to have a perfect credit score to qualify, and these loans often come with a lower interest rate.
Keep in mind that secured loans can be difficult to find. Not all credit unions and banks offer them. You can go to this website for more information on secured loans.
3. Revolving Credit
If you have a credit card in your wallet, you’ve taken out a revolving credit loan. It allows you to borrow money up to a certain credit limit.
Every month, you’ll have to make a minimum payment to chip away at what you borrowed when you swiped your card. Once you’ve paid off your balance, you can start using your credit card again.
The biggest benefit of having a credit card is that it allows you to manage your cash flow. If your rent is due before you get your next paycheck, you can use your credit card and pay off the balance later.
Many credit cards come with sweet incentives such as cashback points. Be warned that revolving credit loans often have high-interest rates attached. The monthly payment can fluctuate as well.
4. Fixed-Rate Loans
Fixed-rate loans are the easiest to pay back because the payments are the exact same for the entire course of the loan. Your balance due will never go up or down unexpectedly.
This makes it easier to plan your bills, which is enough to give anyone peace of mind. The downside is the payments attached to fixed-rate loans are often higher than others. This is true even if you have a decent credit score.
5. Debt Consolidation Loans
If you have a bunch of credit card debt, you may benefit from taking out a consolidation loan. It will allow you to roll all your debt into one bill and set the balance due on your credit cards back to 0.
Not only will consolidating get you out of debt quickly, but the new loan will most likely have a lower interest rate attached.
The downside is that consolidating doesn’t address how you got into debt in the first place. If you start swiping your credit cards as soon as the slate is wiped clean, you’ll put yourself right back where you started.
6. Variable-Rate Loans
The interest rate attached to variable-rate loans tends to fluctuate based on an index rate. If it goes up, so does the interest rate. If it goes down, you’ll get to enjoy a lower rate.
If your interest rate goes up, it could cause your monthly payments to increase as well.
7. Payday Loans
Payday loans are short-term loans that will cover your expenses until the next time you get a paycheck. Once you get another paycheck, you’ll have to pay back the loan.
If you need money in a hurry, you’ll be happy to know that most payday lenders don’t check your credit. The downside is that payday loans have a high interest rate.
If you can’t handle the payments, they’ll roll over into a second payday loan. As you can imagine, this can have quite a domino effect on your finances.
Different Types of Personal Loans to Be Aware Of
As you can see, there are many different types of personal loans that you can use to pay your bills if you fall behind. The one you can get will depend on your credit score and income source.
You also have to consider the repayment terms. You shouldn’t take out a payday loan if you don’t think you can pay your balance off within two weeks.
For more tips that will help you manage your money, visit the Finance section of our blog. You can also read this blog on LLC Business Loan.