What Are The Different Types of Personal Loans?

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Types of Personal Loans I Can Get

There are many possible situations where one may need to seek a loan. Perhaps you have come across a great business opportunity, but your capital is tied up in assets. Maybe you have time off work and want to finally take your dream vacation, or, you have found that special someone and want to find the perfect engagement ring. Regardless of your reason, you probably need funds quickly and with minimal hassle. Personal loans are the ideal solution.

What Is a Personal Loan?

A personal loan allows you to borrow money for a set amount of time under specific terms. These terms generally include an interest rate and monthly payment amount that may be influenced by the type of loan offered. You can apply through traditional avenues like banks or credit unions, or you can explore the burgeoning market of online loans that provide faster and less demanding application processes.

6 Types of Loans for Personal Use

There are many different types of loans, including:

1. Variable-rate Loans

These loans have an interest rate that can change over time. Although it is possible your rate may increase, some loans have a “cap” which limits how much the rate can go up or down. You may opt for a variable-rate loan if you are looking for short-term lending (i.e., funding to give your business a cash-flow boost.)

2. Fixed-rate Loans

As you might expect, these loans have a set interest rate from beginning to end. Having a fixed interest rate is advisable for long-term loans like mortgages to ensure your APR will not be affected by changing market factors over 20 or 30 years.

3. Secured Loans

These asset-backed loans require that you secure them with collateral, like a vehicle or piece of real estate. While this does give the lender legal standing to claim the collateral if the loan is not paid, secured loans generally have lower interest rates as they have less risk to the lender. Home equity loans, which use the borrower’s house as collateral, are a great example and can be used for all sorts of purposes, like renovations that raise the home’s overall value.

4. Unsecured Loans

When you take out an unsecured loan, there is no collateral needed which can mean higher interest rates and less risk of forfeiting property due to default. As the APR is higher, unsecured loans are a good option for short-term funding. For example, businesses can utilize unsecured loans for profitable acquisitions.

5. Line of Credit

The most significant advantage of a line of credit is flexibility. While lines of credit generally have a maximum total you can borrow, you do not need to use all of it immediately. Instead, you can borrow what you need, when you need it, and are charged interest only on what you borrow. Businesses often use lines of credit to access capital for inventory and other day-to-day costs, whereas homeowners can obtain lines of credit to tap into the equity of their homes for use on vacations, college tuition, or large-scale events like weddings.

6. Installment Loan

This loan type gives borrowers access to a lump sum, which they then repay in fixed amounts. Installment loans are a preferred loan for long-term lending since borrowers know how much they are expected to pay each month. It is also popular for large purchases as borrowers get the full amount in one go. A typical example of installment financing is a vehicle loan, where the payment amount is determined by factors like the ARP and term length.

Most loans are a combination of these different types. For example, you may have an unsecured line of credit with a variable rate, or you may have a fixed-rate installment loan with your home as the collateral. Each combination has different advantages, so it is important to research which kind of loan offers the most for your situation before you make any commitments.

What Are the Benefits of Getting a Personal Loan?

The most obvious benefit of getting a personal loan is the ability to make payments over time, rather than having to come up with a large sum all at once. When purchasing a big-ticket item like a washing machine, paying in installments allows you the freedom to find a great product that may not otherwise be in your price range. Having a personal loan that you pay diligently can also have a positive effect on your credit score, which may mean more favorable terms for future loans.

Get a Secured Loan From Lux Exchange Today

Lux Exchange offers asset-backed loans for luxury items such as designer handbags, fine art, Apple products, and much more. Take advantage of our convenient, discreet loan process to get access to the funds you need while having confidence in the security of your valuables. For more information on high-end collateral loans, contact Lux Exchange today!