What are the Various Types of Personal Loans?

A personal loan is perhaps the most common and easiest type of loans individuals can apply for. A personal loan is a loan assistance applied for mostly by a single individual to be used for any kind of emergency expense. There are various lending companies that offer this kind of loan but more often than not, banks are the most common institutions that provides this kind of financial assistance because those who apply for this type of loan are direct clients of the bank.

Personal loans are also sometimes referred to as character loan because this type of financial loan is normally unsecured. The loan is sometimes deemed to be a high risk investment for the bank because it is unsecured so lending companies would only allot a minimal amount for the loan and its repayment term usually short. This type of financial assistance is sometimes referred to as a small bank loan.

When applying for personal loans, lending companies would only perform some kind of income verification on the borrower and in some cases would only require the same to produce proof of assets worth at least as much as the amount of money he or she is borrowing. Usually, this type of loan is approved or denied within a matter of days.

The disadvantage of applying for a personal loan from any loan company is the fact that you would have to pay a higher interest rate. At present, the market rate for personal loans ranges from 10 to 12% and the repayment term usually do not exceed two years.

However, in spite of the high interest that is placed in these types of small loans, this is still one the best ways an individual can resolve his financial problem.

Personal loans come in a variety of loan packages.

First there is the convertible loan that is normally used for business. Convertible loans allow lenders to convert the outstanding principal amount of the loan into equity in the borrower’s business which in turn may be worth more than the loan in the near future. Another type of personal loan is a fixed-rate loan where the loan has a fix interest rate.

There is also an installment loan where the borrower repays the principal amount plus interest at regular intervals or through monthly amortization. Payday loan is a new type of personal loan that is being offered in the market.

Also referred to as cash advances, this is the easiest to avail of. Its accessibility however makes it a very expensive and they have higher interest rate compared to other loans.

They usually short term repayment schemes and are normally secured against your next paycheck so it’s necessary for you to have tenure on your job to avail of this kind of a loan. Secured and unsecured loans where the former requires a collateral such as a car or other high valued properties while the latter does not is also one of the most common form of personal loan.

Finally, there is the single payment loan where the principal amount will have to be paid in one lump sum usually settled at the maturity date of the loan.