5 Main Personal Loan Types

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Top 5 Types of Personal Loans: Know All the Nuances

Every person may find themselves in a tough financial situation when getting quick monetary assistance is necessary. Are you looking for fast funding in a pinch? There are several types of personal loans designed to help get you through a difficult time and solve your temporary disruptions with finances. 

You may request between several hundred dollars and several thousands of dollars for your needs. Everything depends on your personal needs as well as your credit history. Here is a list of the top 5 types of personal loans to help you understand the difference, learn how they work, and make the best borrowing decision.

Types of Personal Loans

1.  Payday Loan

This is a widespread lending solution for many borrowers across the country. People turn to payday loans in Canada 24/7 to cover unforeseen expenses if they don’t have an emergency fund. This is a short-term option when you need a few hundred dollars straight away while there are still a couple of weeks left until the next payday. Generally, you may request up to $1,000 for any purpose or temporary emergency. This loan is unsecured so it shouldn’t be backed up with collateral which is convenient. The money must be paid off in a lump sum on the next payday instead of small installments. On the other hand, it may be risky for the borrower as it comes with higher interest rates with large APRs. If you fail to repay the debt on time you may be trapped in a debt cycle having to take out extra loans to pay the first one off.

Pros:

  • No collateral needed;
  • Short-term solution;
  • Fast financial assistance.

Cons:

  • High interest rates and fees;
  • Limited amount of cash you can request.

2.  Unsecured Personal Loan

This type of loan doesn’t need collateral to secure it. The borrower is free to request the funds for various needs. An unsecured loan means the creditor will make their decision based on the borrower’s credit history and rating. It will determine the number of fees and the interest rate. 

Having an excellent or good credit score will boost your chances of getting approved. But even low credit holders may also apply for this lending option. The terms and conditions are often flexible with a longer repayment term. The debt should be repaid in regular installments until the whole sum is returned to the lender together with the interest. The amount of funds you will be given depends on your rating. Generally, borrowers can acquire from $1,000 to $50,000 for a period of up to six years.

Pros

  • No collateral needed;
  • Fewer risks to the borrower;
  • Flexible repayment terms.

Cons

  • Higher fees for bad credit holders;
  • Longer repayment.

3.  Installment Loan

This borrowing solution is suitable for people who want to take out a larger amount of cash over a longer term. Installment lending options are given in a lump sum to the borrower but the repayment is conducted in equal monthly parts or installments. It can be secured or unsecured. If you have a poor credit rating but want to avoid higher rates, you may want to back the loan up with some collateral such as your auto or house. Installment loans offer great financial assistance for borrowers but they require some paperwork. According to the Bank of Canada, 89% of consumers own at least one credit card and take out personal loans.

Pros

  • Flexible terms;
  • Small monthly payments;
  • Lower fees.

Cons

  • Higher interest rates for bad credit;
  • Long repayment period.

4.  Wedding Loans

This is a common type of personal loan that can be obtained for your upcoming wedding. Many young people don’t have enough means to cover all the wedding costs but the dream of a brilliant ceremony can become a reality. This is an unsecured option for your personal needs. 

If your credit history is great and without errors, you can easily qualify for low interest rates and flexible conditions of this loan. This is a wonderful solution for the times when you don’t want to waste your time trying to save enough cash. 

Are you planning to travel to another country during your honeymoon? Would you like to purchase a perfect wedding gown or pay for the best venue in your area? It’s quick and secure to borrow the necessary funds for the wedding of your dreams or honeymoon.

Pros

  • No collateral needed;
  • Quick lending solution.

Cons

  • Higher interest for poor credit;
  • Paperwork is required.

5.  Debt Consolidation Loan

Do you have several credit cards or loans that need to be repaid? This lending option allows borrowers to combine numerous debts into one and make a single regular payment. In other words, you consolidate your existing debt so that it’s easier to manage it. 

Whether you’ve taken out personal loans, wedding loans, or credit cards you can utilize this option to lower your debt. It is designed to help consumers decrease their overall costs and lower monthly payments. This way you get a more affordable loan with lower fees. 

However, sometimes lenders offer the same rates or extra charges which can make this loan even more expensive.

Pros

  • Unsecured option;
  • One loan instead of several types of debt.

Cons

  • Potentially higher fees;
  • The temptation to back up on credit cards or other loans. 

In conclusion, various lending options are created to help consumers select the most desirable solution. The top 5 types of personal loans can be helpful for those people who don’t have a savings account or an emergency fund but still need to solve temporary disruptions and cover unpredicted costs. 

Shop around and compare the terms of various options. Your aim is to find the best fit for your current financial situation and avoid risks. Choose the loan that works best for you and borrow responsibly. Paying the debt back on time and in full will boost your credit and allow you to qualify for even better conditions next time a sudden emergency hits you.