6 types of small personal loans

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Many types of small personal loans are in the market. If you need to borrow money, read on to learn more about your options. (Shutterstock)

A small personal loan can be a good borrowing option if you’re someone who only needs a small amount to meet your financial goals.

Here are six different types of small personal loans which you can use to cover a variety of expenses when you’re short on cash.

1. Unsecured personal loans

Good for: People with higher credit scores

With an unsecured private loan, borrow a lump sum up front and pay it back in fixed installments over an agreed period of time. The main advantage of an unsecured personal loan is that you do not have to secure the loan with collateral. This means that the lender cannot confiscate your assets if you default on the loan.

The downside is that the interest rate you get is heavily tied to your credit score. So if you have bad credit, you’re probably paying a higher interest rate.

Visit credible View your prequalified personal loan rates from different lenders, all in one place.

2. Secured Personal Loans

Good for: People working on their credit

If you can’t qualify for an unsecured personal loan, a secured personal loan is a solid lending option. As with unsecured loans, you receive an upfront payment that you pay back in fixed installments. Unlike unsecured loans, secured loans require you to provide collateral such as a car, money in a savings account, or a certificate of deposit. If you default on the loan, you risk losing that collateral.

But if you have bad credit, providing collateral can facilitate access to a personal loan. As a bonus, paying a secured personal loan on time can be a great way to improve your credit score.

3. Debt Consolidation Loan

Good for: People who have multiple high-interest debts

A Debt Consolidation Loan is a type of unsecured personal loan designed to help you consolidate multiple sources of debt into one loan. This can simplify the debt repayment process since you only have one lender to make payments to, one monthly due date, and one interest rate. If you’ve improved your credit score since filing for the original debt, you may qualify for one lower interest rate for a new loan. In this case, you can save money on your debt payments and can have lower monthly payments — all of which can make it easier to make additional payments and pay off your debt faster.

The downside of debt consolidation loans is that there is no guarantee that you will get a lower interest rate, so it’s important to shop around for the best deal.

4. Buy now, pay later

Good for: People looking for an inexpensive way to distribute an expensive purchase

Buy It Now Pay loans are a type of installment loan that you can use to shop at participating retailers. You can make a purchase with either no or a small initial payment and then pay off the balance over a few payments (usually four or fewer).

The advantage of these loans is that the approval process is quick and easy. The downside, however, is that you’ll likely be charged a late fee if you miss a payment.

5. Common Personal Loans

Good for: People working together toward a financial goal

When applying for a joint personal loan, you are applying for a traditional personal loan, either secured or unsecured. The difference is that you are applying with a co-borrower (also known as a co-applicant). With joint personal loans, both applicants share equal responsibility for paying off the loan.

It can be easier to qualify for a joint personal loan since you’re bringing two incomes to the table instead of one, which can earn you a lower interest rate and possibly a larger loan amount. The biggest downside to a shared personal loan is the trust that the co-borrower will make the agreed payments. It’s important that you both have a plan for paying off the loan on time so you don’t run into fees and damaged credit.

When you’re ready to apply for a personal loan, visit Credible quickly and easily compare interest rates on personal loans from different lenders.

6. Personal Credit Lines

Good for: People who want flexibility in loan amounts

You can apply for a personal loan from a bank or credit union. A line of credit works similar to a personal loan because you can use it to cover a variety of purchases. But it’s also similar to a credit card: you can borrow on one up to your approved amount demand base, but you don’t have to borrow your entire credit limit at once. This means that you only have to pay interest on the amount borrowed.

Lines of credit are sometimes secured, which means you risk losing collateral if you don’t make your payments on time. Another downside is that lines of credit can come with annual fees, so be sure to read the fine print before signing one.

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