Five types of personal loan that might be right for you
Need to borrow money and want to consider your options? Here are five types of personal loan that might be right for you.
Personal loans are financial products that allow thousands of Americans to overcome both short and long-term financial issues. However, the type of personal loan that a customer should choose is dependent on their needs and overall repayment goals.
To get a better idea of which loan may be right for you, we have created a breakdown of five of the most popular types of personal loans with funds up to $5,000.
What are the five types of personal loans?
Here are five types of personal loan you may consider.
1) Credit card cash advances
Credit card cash advances are similar to payday loans, but instead of borrowing against a pending paycheck, you are borrowing against an open line of credit.
Cash advances can be withdrawn from most bank-owned ATMs and some other financial institutions. You can withdraw your credit card balance in cash, but unlike withdrawing from your checking account, the money must be repaid and with interest.
These types of loans are great for those who already have an open line of credit and want to avoid applying for a new line of credit with a separate lender.
2) Payday loans
Payday loans are one of the most popular forms of personal loans. This is due to their broad leniency regarding credit scores and payment history.
The lending decision for payday loans focuses much more on employment status than anything else. Still, these lenders will look into your credit report for major red flags, which can lead to a denial of service.
According to GreenStarCash, you will see the funds in your checking account the same or next business day depending on the time of day you apply. Try to apply early in the morning to be eligible for same-day funding.
The amount you can borrow through a payday lender varies by state but is usually between $300 and $1,000.
3) Car title loans
Car title loans are secured loans where the car is used as collateral, so if you default on your loan, the lender will repossess your vehicle to earn back their money. It is important to remember that if your collateral does not cover the full cost of the defaulted loan, you will still be required to pay the additional balance.
These types of loans are usually issued through banking institutions or car lots and the amount issued can vary based on your credit and the value of the car. Unlike payday loans and cash advances, car title loans have strict standards regarding your credit and repayment history.
4) Pawn shop loans
Pawnshop loans are a popular way to get small amounts of money, quickly. These loans are collateral-based, which makes them a secured loan. However, they are a little different than other types of loans because you must leave your collateral possessions with the lender until you repay your loan.
To ensure they make money from the transaction, you will only be lent an amount that is a portion of the value of the collateral. That makes pawn shops great for a small amount of emergency cash, but not so great for large loans.
5) Peer to peer loans
Some borrowers with a lack of credit history can find peer to peer lending a good option. These are loans provided by individuals versus lending companies. Both personal and business loans can be acquired through peer to peer lending, but the overall risk of the loan is higher for all parties involved.
While this can be a great option for those denied through traditional lenders, it can also lead to interactions with peer lenders looking to make cash quickly. This can often result in receiving a loan offer with interest rates that are far higher than through private lenders. Remember to check your state laws and regulations and never agree to pay more in interest than your state allows.
What do you need to obtain a loan in the United States?
The specific requirements for lender approval will vary based on your state and the lender in question; however, there are some federal requirements that must be met by all potential loan holders:
- You must be over the age of 18 with a valid ID
- You must be a US citizen
- You must be a citizen of the state in which you are requesting the loan
- You must have a valid checking account
- You must have a valid telephone number
There are other common requirements that you are likely to run into. Many companies require you to have an email address where you can be reached electronically. You may also need to provide proof of income through check stubs or tax documentation.
Which loan is best for you?
Deciding on the best loan for you takes a bit of self-inventory. Ask yourself these questions:
- Do I have a good credit score?
- How quickly can I repay my loan?
- How much money do I need?
- Do I have collateral to help secure my loan?
- What are my state regulations regarding personal lending?
If you have poor credit, you may find that secured pawn shop loans and payday loans are the better options for you.
On the other hand, if you need a large amount of money and are less worried about your credit score, you will find that banks, credit card companies, and P2P lenders can often provide larger loans.