The US Federal Reserve Bank released its estimates for the 3rd quarter of 2018. It showed the value of consumer loans granted by commercial banks in the US stood at $1.49 trillion.
The demand for personal loans has been on the rise as more people look into the easy way of financing their activities. This trend has been ongoing over the last 10 years.
Personal loans entail a type of credit given to an individual for their personal development rather than for business. Do you need a personal loan? This guide explains all the main types of personal loan options available.
Unsecured Types of Personal Loans
This is a type of loan comes primarily from a financial institution but can also come from individual lenders. Its main characteristic is lack of collateral to guarantee that the person will pay back.
When you take an unsecured personal loan, your bank will probably need your salary to be processed via the bank. For business-oriented customers, banks tend to assess their ability to pay back from their bank statements.
Secured Personal Loans
Unlike unsecured loans, these types of personal loans will tie your loan on a property that you own. It could be land, car, or a house and can be auctioned if you fail to pay the loan.
Secured loans are common with financial institutions helps them deter defaulting.
Small Lenders Loans
These are unstructured types of personal loan, mostly advanced by family, friends or informal lenders. These do not need to go through statutory regulations. Most of them are based on personal history and trust while others are based on informal authority.
Their interest rates vary. Some come without any interest like family loans, but those from other informal lenders may have a specific interest rate.
Fixed Rate Loans
This is a type of personal loan that has a cap on the amount of interest you can pay. The number of installments you pay does not determine the amount of interest as the rate is already fixed. Even if you pay your loan in a single installment, you will still have to pay the agreed interest.
Non-Fixed Rate Loans
In non-fixed rate loans, the amount of interest is likely to keep reducing as the principal payment reduces.
The interest is calculated on a reducing balance making it very affordable in terms of the principal amount borrowed. This is the most common loan that banks give and borrowers like it.
Online Installment Loans
These are modern forms of loans usually based on online platforms and other digital spaces. They provide quick and less constrained loans. This is the ideal loan type for you if you have an emergency.
Online installment loans are to be paid within a very short time and their interest is normally quite high. However, because the loans are acquired when there is a pressing need, you might not need to think much about the interest.
Understand Personal Loans
Decades ago, the only source of credit was either through the bank or through friends and family. Things have since changed as people can access loans easily even when their credit history is not as good.
Getting a personal loan is a sure way to advance your personal financial needs and the more you know of the types of personal loans available, the better. This way, you will understand the type of loan you need.
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