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Over the past five years, the amount that Millennials owes on their personal loans has grown 44%, according to Experian data. This is more than double the growth seen by any other age group.
Even if you are not a Millennial, it can be helpful to learn what types of loans you can find on the market and which ones are better suited for your needs. Personal loans become part of everyone’s life at one point or another and nowadays, direct lenders are on every page of the internet offering you the best deals.
There are some types of personal loans that gained more popularity than others due to their several benefits, but this doesn’t mean they’re right for you. Find out what types of loans you can find on the market and which one's better suit your needs.
Let's start with the basics, an overview of the different types of loans, interest rates, and repayment terms. The only way you know if a personal loan is worth it for you is to understand how they work.
Secured loans are typically backed by collateral, like your vehicle, house or some other assets which you pledge to the direct lender in exchange for a loan. The advantage of these types of loans is that they usually have lower interest rates and are easier to obtain since they are less of a risk due to the collateral.
The disadvantage, however, is that the other important criteria to get approved will be your Credit Score, which needs to be somewhere in between 580 – 739 or higher. In case you have a bad credit situation, you’ll most likely not going to get a secured loan. If your credit score is on the lower end, you can easily improve it in just 5 easy steps.
Unsecured loans are not backed by collateral, therefore, they tend to have higher interest rates. The main factor to get approved for an unsecured personal loan is your Credit Score. Direct lenders became more flexible with time, so if you’re lucky and dig a little deeper, you’ll find reputable companies that will do their best to get you approved for a loan.
For example, Credit Cube is an online direct lender that offers short-term installment loans and apart from your credit situation, they will ask if you have a secure monthly income source, or if you’re employed – just so they can have a proof you can pay off what you borrow. Also, they discuss with you the repayment schedule so the installments will meet your needs and financial possibilities and they don’t charge extra in case you want to make pre-payments, this is an advantage that can have a huge impact on your overall pay off process.
Personal Loan Interest Rates
Fixed-Rate Personal Loans
Fixed-rate personal loans are the ones that carry fixed rates and monthly payments. They are a great choice if you allow a certain sum of money from your budget to the monthly pay off process.
At some point, you might find their lack of flexibility very inconvenient, so it is one thought-provoking disadvantage. Just a tip, it’s always a better choice to opt for more flexible lenders.
Variable-Rate Personal Loans
Variable-rate personal loans have interest rates connected to the benchmark rates, also known as the index rates, which are set by banks. As a result, your monthly payments, as well as their interest rates, will follow their course.
Depending on the economic condition, this can be a good thing, as index rates tend to have a lower APR (Annual Percentage Rate) when they go down; it allows you to pay off your loan balance at a lower cost. However, when the index rate rises, that means your loan balance cost will grow as well, which can be very … pricey!
Personal Loan Repayment Terms
Short-term loans typically involve borrowing a small amount of money over a short period of time (a few months up to maximum one year). They are the best solution if you’re dealing with a financial emergency or you’re in need of some extra cash.
They are fast, flexible; it takes only a few minutes to get approved by the online direct lenders and they have a lot of other benefits. However, you should be careful as some short-term loan types have very high-interest rates, for example, payday loans, which can lead to bigger financial problems.
To sum up our personal loans guide, there are numerous possibilities out there, the first step is to identify your needs, financial possibilities and find a lender which will understand them as well. The road to a debt-free life can be easy if you make it!
Fortunately, a personal loan from a reputable lender can be a low-cost solution when you need to borrow money.
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