Personal loans are loans which are used to help a person when they may be financially strained if an emergency occurs or if they want to purchase something expensive but don’t have the money upfront. When applying for loans, it’s important to understand which ones are available and what they mean to make sure you’re making the right decision for your current situation. In this article we’ll cover the top three different types of personal loans available depending on your needs.

Express Loans or Payday Loans 

Known also as payday loans, express loans are generally short-term loans which give you immediate cash when you need it. However, they don’t give out high amounts of money compared to other types of loans, as this type of loan is designed to cover urgent expenses until your next pay day. The loan will then be paid with your next pay cheque.

Key Characteristics:

• Payday loans often have annual percentage rates in the triple digits.
• Most payday loans are due in full by your next payday, usually within two weeks.
• Payday lenders often don’t require good credit to approve loans, making them accessible for those with bad credit.
• Quick access to cash, usually within the same day.
• Approval is easy, with minimal documentation required.
• Short repayment terms can lead to a cycle of borrowing. Remember if the loan can’t be repaid on time you could fall into debt.

Express loans are ideal for borrowers who need quick cash solutions before their next paycheck to pay for an urgent purchase.

Unsecured Personal Loans

These loans are the more common types of personal loans available. They don’t need any collateral to take out so your assets aren’t going to be at risk if you can’t pay the loan back. The lender though will only grant these types of loans based on a person’s credit history.

Key Characteristics:

• You don’t need to back the loan with any property.
• Since the lender sees these loans as risky due to not having any collateral, unsecured loans often have higher interest rates than secured loans.
• Some loans offer fixed interest rates, while others are variable, meaning the rate can change over time.
• They’re faster in getting approved compared to secured loans.
• These loans may have stricter eligibility requirements.

Unsecured personal loans are best for individuals who have great credit scores and need money for emergencies, vacations or even home improvements.

Secured Personal Loans

These types of loans are required to have some sort of collateral attached when taking them out. Normally it would be a car, savings or a different type of asset that would cover the loan if you can’t pay it. Lenders tend to see these loans as safer options and offer lower interest rates.

Key Characteristics:

• You must offer an asset to secure the loan.
• Because the loan is secured, the rates tend to be more affordable.
• They often allow for longer repayment periods.
• They offer lower interest rates compared to unsecured loans.
• It’s easier to qualify for when you have bad credit.
• You have a risk of losing the collateral you have against the loan if you default on the loan.
• The application and approval process may be more extensive.

These loans are ideal for those who may not have a perfect credit score or who may want lower interest rates. Sometimes, they’re beneficial for those who are seeking larger loan amounts.

Endnote

Choosing the right type of personal loan for your situation and needs will be determined by a few different factors. When weighing up which type to choose, always remember to only take out what you can afford to pay back in a timely manner to help you stay out of debt.