Personal loans allow you to borrow money for any purpose. They come in many forms with varying features, terms, interest rates, and qualifications. Understanding the different types of personal loans available can help you select the best loan for your needs.
Overview of Personal Loan Types
There are several main categories of personal loans:
Secured vs Unsecured – Secured loans require an asset like your home or car as collateral that can be seized if you default. Unsecured loans have no collateral requirements.
Installment vs Revolving – Installment loans provide a lump sum upfront that’s repaid in equal monthly payments. Revolving loans act more like credit cards with flexible draw periods and minimum monthly payments.
Fixed vs Variable Rates – Fixed rate loans lock in an interest rate that stays the same over the full term. Variable rate loans fluctuate based on market changes.
Cosigned vs Joint Loans – Cosigned loans add a second borrower with better credit to help you qualify and get better rates, while joint loans allow two borrowers to equally access and repay the funds.
Consolidation Loans – These allow you to combine multiple debts into one new loan at a lower interest rate.
Buy Now, Pay Later Loans – Make purchases now and divide payment into installments over a short period of time, usually interest-free.
Beyond these main categories, there are also more specialized loan types like holiday loans, student loans, auto loans, and business loans. The type that works best depends on your credit, income, costs, and how you plan to use the money.
Secured Personal Loans
Secured personal loans require collateral – an asset the lender can seize and sell if you fail to repay the debt. Home and auto equity loans are the most common types.
Home Equity Loans and Lines of Credit (HELOCs)
Borrow against the equity or value you have built in your home. The home acts as collateral for the lender.
Uses:
- Home improvements and renovations
- Major medical expenses
- College tuition
- Debt consolidation
- Large purchases
- Starting a business
Pros:
- Lower interest rates
- Higher loan amounts
- Potential tax deductions
Cons:
- Risk losing your home if you default
- Closing costs and fees
- Lower home equity and value
Auto Equity Loans
Leverage your car’s value to borrow money using the vehicle as collateral. The lender can repossess your car if you fail to repay.
Uses:
- Car repairs
- Medical bills
- Small business expenses
- Debt consolidation
Pros:
- Quick access to cash
- Keep driving your car
- Lower rates than title loans
Cons:
- Lose your car if you default
- Higher rates than home equity loans
- Car depreciates over loan term
READ ALSO: The Complete Guide to Personal Loans
Pawn Shop Loans
Provide an item of value as collateral to immediately borrow a fraction of its resale value. Default means the pawn shop keeps and sells your item.
Uses:
- Quick cash in emergencies or to pay bills
- Small amounts of $100-$5,000
Pros:
- Instant access to cash
- No credit check
- Short loan terms
Cons:
- Very high fees and APRs
- Risk losing collateral forever
Share-Secured Loans
Borrow against funds you have in an existing savings account. The lender can seize your savings if you default.
Uses:
- Debt consolidation
- Emergencies
- Major purchases
- Business expenses
Pros:
- Lower interest rates
- Chance to build credit
Cons:
- Lock up your savings
- Lose savings if you default
- Slow access to funds
Unsecured Personal Loans
Unsecured personal loans carry higher risks for lenders since there is no collateral to recoup losses. Requirements are stricter and interest rates are higher.
Traditional Bank Loans
Borrow from a bank branch. Require excellent credit and long banking relationship for the best rates and approval odds.
Uses:
- Debt consolidation
- Home improvement
- Big purchases
- Relocation expenses
- Weddings
Pros:
- Fixed rates
- Predictable payments
- Establish banking relationship
Cons:
- High credit score requirements
- Slow application and funding
- Fewer term options
Online Loans
Receive funding faster through online lenders. Approve borrowers with fair credit and offer loans up to $100k.
Uses:
- Credit card refinancing
- Debt consolidation
- Large purchases
- Business expenses
Pros:
- Faster funding
- Lower credit score requirements
- Higher loan amounts
- More flexible terms
Cons:
- Higher interest rates
- Risk of predatory lenders
- Difficult to compare many lenders
Payday Alternative Loans (PALs)
Offered by credit unions to members as a lower-cost alternative to payday loans for emergency expenses.
Uses:
- Emergency costs
- Medical bills
- Late utilities
- Car repairs
- Pay other debts
Pros:
- Lower fees than payday lenders
- Small loans up to $2,000
- Membership benefits
Cons:
- Very strict credit requirements
- High application scrutiny
- Low loan ceilings
Payday Loans
Get instant cash advance on your paycheck for a very high cost. Must repay in full on next pay date or fees stack up.
Uses:
- Cover costs until next paycheck
- Emergency expenses
- Bills coming due
Pros:
- Instant cash
- No credit check
- Online and in-store options
Cons:
- Extremely high fees and APRs
- Creates debt cycle
- Risk of overdraft fees
- Laws limit loan amounts
Title Loans
Borrow a fraction of your car’s value and risk losing the vehicle if you default. Typically have exorbitant interest rates.
Uses:
- Quick emergency cash
- Pay bills coming due
- Large purchases
Pros:
- Receive cash instantly
- Keep driving your car
Cons:
- Very high interest rates
- Risk car repossession
- Balloon payments
Cash Advances
Withdraw cash from your credit card with fees and high APRs. Can also use cash advance apps with similar costs.
Uses:
- Cover emergency costs
- Pay urgent bills
- Pay other debts
Pros:
- Instant cash access
Cons:
- High fees per transaction
- High interest charges
- Low weekly/monthly limits
- Hurts credit utilization
Installment Loans
With installment loans, you receive the full amount upfront and make fixed monthly payments over a set repayment term until the balance is paid off.
Personal Installment Loans
Receive loan funds in a lump sum and make fixed monthly payments for 6 months to 7 years until repaid in full.
Uses:
- Consolidate debt
- Make large purchase
- Pay medical bills
- Finance a vacation
- Wedding expenses
Pros:
- Fixed payment amounts
- Variety of term lengths
- Build credit history
Cons:
- Rigid terms
- Pay interest on full balance
- Large single monthly payment
Student Loans
Get loan money to pay for college, trade school, or graduate programs and pay it back over years.
Uses:
- Pay tuition and school fees
- Cover textbooks, supplies, dorm costs
- Finance medical/dental school
Pros:
- Invest in your education and future
- Many repayment and forgiveness options
- Build credit history
Cons:
- Accrue interest during school
- Extensive terms up to 25 years
- Difficult to discharge in bankruptcy
- Borrow more than needed
Auto Loans
Finance the purchase of a new or used car; the vehicle acts as the collateral if you default.
Uses:
- Buy a car
- Refinance existing auto loan
Pros:
- Pay off over 3-7 years
- Own a reliable vehicle
- Potentially lower insurance
Cons:
- Pay more in interest than cash purchase
- Higher cost for newer cars
- Car depreciates as you repay
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Mortgage Loans
Large installment loan to purchase or refinance a home, repaid over 15-30 years. The property acts as collateral for the lender.
Uses:
- Buy a house
- Refinance your mortgage
- Tap home equity
Pros:
- Predictable fixed payment
- Build substantial equity
- Potential tax breaks
Cons:
- Decades until payoff
- Risk foreclosure if default -Difficult to qualify; strict requirements
Personal Leases
Lease home furniture, electronics, jewelry, and more with flexible monthly payments and the option to own, return, or continue leasing the items.
Uses:
- Obtain furniture and appliances
- Access electronics and computers
- Lease jewelry for special events
Pros:
- Alternative to traditional financing
- Flexible lease-to-own agreements
- No long-term debt obligation
Cons:
- Do not build equity
- Contract breaches have consequences
- Cannot modify or return leased items
Revolving Loans
With revolving loans, you have ongoing access to the credit line as you repay it, rather than getting the full amount upfront in a lump sum.
Credit Cards
Revolving credit lines let you borrow up to a certain limit, make monthly minimum payments, and reborrow as you pay it down.
Uses:
- Any purchase or bill payment
- Hotel and travel bookings
- Small business expenses
Pros:
- Revolving credit access
- Perks and rewards incentives
- Build credit easily
Cons:
- Very high interest rates
- Minimum payments extend payoff
- Fees for cash advances or late payments
Personal Lines of Credit
Revolving credit line you can access as needed and make monthly payments on the balance over time.
Uses:
- Home renovations
- Business operating costs
- Medical expenses
- Car repairs
- Any large recurring costs
Pros:
- Pay interest only on what you use
- Access large credit line as needed
- May offer fixed or variable rates
Cons:
- Variable rates may rise over time
- Temptation to overspend
- Difficult to get for poor credit
Overdraft Lines of Credit
Allows you to overdraw your checking account up to a set limit for a daily fee or interest charge. Must repay quickly.
Uses:
- Pay urgent bills
- Cover emergency costs
- Pay everyday expenses
Pros:
- Always available emergency funds
- No credit check
Cons:
- Very high costs and fees
- Repay quickly to avoid fees
- Hurts credit score if abused
Cash Advances
Borrow against your credit card’s available limit to receive cash immediately. Fees and high interest rates apply.
Uses:
- Cover emergency costs
- Pay urgent bills
- Pay other debts
Pros:
- Quick cash access
Cons:
- High fees per transaction
- High interest charges
- Low limits
- Hurts credit utilization
Hybrid Loan Options
Some loans blur the lines between revolving and installment models. Their structure combines aspects of each.
Buy Now, Pay Later Plans
Make purchases now and divide payment into installments over a short period, typically interest-free.
Uses:
- Clothing and apparel
- Travel and experiences
- Beauty and wellness
- Home goods and décor
- Electronics and appliances
Pros:
- Interest-free installments
- Easy and instant approvals
- Build credit with on-time payments
Cons:
- Encourage overspending
- Late fees quickly add up
- Deferred interest when terms expire
Balance Transfer Cards
Special credit cards that let you transfer and pay off debt balances from other cards over 12-18 months interest-free.
Uses:
- Consolidate credit card balances
- Pay off balances faster
- Access intro 0% APR period
Pros:
- Save substantially on interest
- Consolidate multiple balances
- No balance transfer fees
Cons:
- Deferred interest after promo expires
- Common 3%+ transaction fees
- New charges lose grace period
Peer-to-Peer (P2P) Loans
Borrow from individual investors rather than institutions for low rates through P2P lending marketplaces.
Uses:
- Save on interest
- Refinance debts
- Fund large purchases
- Launch a business
Pros:
- Loan bidding lowers rates
- No collateral required
- Credit score not primary factor
Cons:
- Not widely accessible
- Unpredictable investor funding
- Limited consumer protections
Cosigned and Joint Personal Loans
If you cannot qualify for a good loan on your own, adding a cosigner with better credit may help you get approved and get lower interest rates. The cosigner takes equal responsibility for the debt, though, so consider alternatives if possible. Joint personal loans allow two co-borrowers to apply together and both access the loan funds.
Debt Consolidation Loans
These allow you to combine multiple individual debts and loans into one new consolidated loan, ideally at a lower interest rate. This lets you simplify repayment into just one monthly payment. Use caution not to accumulate more debt after consolidating.
Uses:
- Simplify repayment
- Lower interest costs
- Streamline personal finances
- Pay off credit card balances
Pros:
- One payment per month
- May improve credit mix
Cons:
- Application fees and costs
- Risk racking up new debt
- Lose benefits of any paid-off loans
Holiday and Special Occasion Loans
Some lenders offer special personal loans marketed for financing holiday spending, weddings, vacations, and other special occasions. But most standard personal loan types can also be used for these purposes. Compare rates and fees carefully.
Considerations When Choosing a Personal Loan
- Interest rates and fees – Compare APR and origination fees across multiple lender offers.
- Loan amount – Make sure the lender offers the loan amount you need.
- Credit requirements – Know the minimum credit score needed for approval odds.
- Time to funding – Online lenders typically offer the fastest access to approved funds.
- Flexible terms – Select terms between 1-7 years that work for your budget.
- Fixed vs variable rates – Fixed rates provide consistent, predictable payments.
- Payment schedule – Some lenders allow biweekly or semi-monthly payments.
- Prepayment policies – Many personal loans charge no early payoff penalty.
- Cosigner options – Adding a cosigner with good credit can help you qualify and get better rates.
Questions to Ask When Applying for a Personal Loan
- What are the interest rates and APR ranges?
- How much can I borrow based on my income and credit score?
- How long will the application process take?
- When will I get the loan funds if approved?
- Is a cosigner allowed?
- Can I choose the loan repayment term?
- Do you offer fixed or variable interest rates?
- How much are the origination and processing fees?
- Is there a charge for paying off the loan early?
- How long will the loan stay on my credit report?
- How quickly will you report my payments to the credit bureaus?
Alternatives to Consider Before Taking a Personal Loan
While personal loans serve many purposes, make sure to also consider alternatives that may be cheaper in the long run:
- 0% APR credit cards – For short-term financing needs at no cost
- Home equity loan – Lower rates by using home equity as collateral
- Pay off highest rate debts first – To save substantially on interest vs consolidating debts through a loan
- 401(k) or IRA withdrawals – As an absolute last resort if you have no other options
- Debt management plan – Work with creditors directly to negotiate lower rates and payments
- Balance transfer card – Consolidate credit card balances interest-free for over a year
- Cash-out mortgage refinance – If home equity and credit scores are strong
- Budget cuts – Reduce expenses temporarily instead of borrowing if possible
- Side gig income – Rather than borrowing, make extra money nights/weekends via freelancing, rideshare driving, etc.
To Recap
Personal loans are one of the most flexible financing options since the funds can be used for virtually any purpose. Taking the time to understand the many different types of personal loans available enables you to find the best loan for your specific needs, at the lowest rates and fees you qualify for.
Be sure to only borrow what you can comfortably afford to repay on time each month. And exhaust other alternatives before choosing to take on personal loan debt. Used strategically as intended, personal loans allow you to pay for major purchases, investments, and expenses that would otherwise be out of reach.
Frequently Asked Questions About Types of Personal Loans
What are the main types of personal loans?
The primary categories of personal loans include:
- Secured (collateral required) vs unsecured
- Installment (fixed payments) vs revolving line of credit
- Fixed rate vs variable rate
- Joint/cosigned loans
- Debt consolidation loans
- Buy now, pay later financing
- Holiday loans
- Student loans
- Auto loans
What are the easiest personal loans to get approved for?
Some of the easiest personal loan types to qualify for include:
- Payday loans – Require just proof of income, but have extremely high fees.
- Pawn shop loans – Receive immediate loan secured by an item of value you provide. But you risk losing your collateral if you cannot repay.
- Credit card cash advances – Can withdraw cash from your available credit limit but pay fees and high interest rates.
- Overdraft line of credit – Banks will approve you to overdraw your account up to a set limit for a fee. Requires an existing checking account.
- Retail store credit cards – Department and retail stores frequently offer instant credit approval for purchases, but interest rates are very high.
While quick and easy to get, these loan types ultimately cost significantly more than traditional unsecured personal loans from banks or online lenders. Only use them as an absolute last resort.
Should I get a secured or unsecured personal loan?
Secured personal loans require collateral like your home or car, which the lender can seize if you default. But they offer lower interest rates.
Unsecured personal loans have no collateral, so getting approved is based on your creditworthiness. Rates are higher but you take on less risk.
In general, only get a secured loan if you’re comfortable using your home equity or car as collateral to get a lower rate on a sizable loan amount. Otherwise, unsecured loans are less risky and more widely accessible.
What credit score do I need for most personal loans?
Each lender sets its own minimum credit requirements, but here are general approval guidelines:
- Excellent credit (720+ score): Best approval odds and lowest rates
- Good credit (680-719 score): Decent chance of approval at below average rates
- Fair credit (640-679 score): May get approved but pay higher than average interest rates
- Poor credit (below 640): Very difficult to get approved for an unsecured personal loan
Shop around with multiple lenders and aim for the highest credit score possible to increase your chances of getting an affordable personal loan.
What are the pros and cons of cosigned personal loans?
Pros:
- Improve your chances of getting approved
- Access better interest rates
Cons:
- Cosigner is equally responsible for repaying the debt
- Debt impacts cosigner’s credit too
- Strained relationships if payments become delinquent
Adding a cosigner can make qualifying easier and reduce rates. But proceed with caution – a cosigned loan can negatively impact relationships and finances if not managed carefully.
How can I get a low interest rate on my personal loan?
Tips for getting the lowest rate possible on a personal loan:
- Have excellent credit (720+ score)
- Lower your debt-to-income ratio
- Provide collateral for a secured loan
- Take a shorter loan term (e.g. 3 years instead of 5)
- Choose a lower loan amount
- Shop and compare rates across multiple lenders
- Opt for autopay and electronic statements
Building your credit profile and comparing loan offers is key to finding the most affordable personal loan rates.
In another related article, What’s the Average Personal Loan Interest Rate?
