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Most personal loans are unsecured with fixed rates and payments. But there are other types of personal loans, including secured and co-signed loans. The type of loan that works best for you depends on factors including your credit score and how much time you need to repay the loan.
» MORE: Best personal loans
Unsecured personal loans
Most personal loans are unsecured, meaning they aren’t backed by collateral, such as your home or car. This makes them riskier for lenders, which may mean they charge a slightly higher annual percentage rate, or APR. The APR is your total cost of borrowing and includes the interest rate and any fees.
Whether you’re approved and what APR you receive on an unsecured personal loan are mainly based on your credit score, income and other debts. Rates typically range from 6% to 36%, and repayment terms range from two to seven years.
» COMPARE: Rates and terms of unsecured personal loans
Secured personal loans
Secured loans are backed by collateral, which the lender can seize if you fail to repay the loan. Examples of other secured loans include mortgages (secured by your house) and auto loans (secured by your car title).
Some banks and credit unions let borrowers secure the loan with personal savings or another asset. Online lenders that offer secured personal loans usually let you borrow against your car. Secured loan rates are typically lower than unsecured loan rates because they are considered less risky for lenders.
Most personal loans carry fixed rates, which means your rate and monthly payments (also called installments) stay the same for the life of the loan.
Fixed-rate loans make sense if you want consistent payments each month and if you’re concerned about rising rates on long-term loans. Having a fixed rate makes it easier to budget because you don’t have to worry about your payments changing.
Interest rates on variable-rate loans are tied to a benchmark rate set by banks. Depending on how the benchmark rate fluctuates, the rate on your loan — as well as your monthly payments and total interest costs — can rise or fall.
Variable-rate loans may carry lower APRs than fixed-rate loans. They may also carry a cap that limits how much your rate can change over a specific period and over the life of the loan.
Though not as widely available as fixed-rate loans, a variable-rate loan can make sense if it carries a short repayment term, as rates may rise but are unlikely to surge in the short-term.
Debt consolidation loans
A debt consolidation loan rolls multiple debts into one new loan, leaving you with a single monthly payment. Consolidating is a good idea if the loan carries a lower APR than the rates on your existing debts, so you save on interest.
» COMPARE: Debt consolidation loans in your state
Co-signed and joint loans
Co-signed and joint loans are best for borrowers who can’t qualify for a personal loan themselves, or who want a lower rate.
A co-signer promises to repay the loan if the borrower doesn't, but doesn’t have access to the loan funds. A co-borrower on a joint loan is still on the hook if the other borrower doesn’t make payments, but they can access the funds.
Adding a co-signer or co-borrower who has strong credit can improve your chances of qualifying and may get you a lower rate and more favorable terms on a loan.
Personal line of credit
A personal line of credit is revolving credit and more like a credit card than a personal loan. Rather than getting a lump sum of cash, you get access to a credit line from which you can borrow on an as-needed basis. You pay interest only on what you borrow.
A personal line of credit works best when you need to borrow for ongoing expenses or emergencies, rather than a one-time expense.
Buy now, pay later loan
“Buy now, pay later” loans let you split an online purchase into smaller installments. At checkout, you create an account with a BNPL app, pay for part of the purchase and authorize the app to charge you the rest of the balance, usually in bi-weekly installments.
BNPL works best for necessary, one-time purchases that you wouldn’t otherwise be able to pay for with cash. These companies don’t require good credit to qualify you; rather, BNPL apps review your bank account transactions and may do a soft credit pull.
» MORE: Compare BNPL apps
Types of loans to avoid
Even small loans that have high APRs and short repayment terms can be difficult to repay on time. If you fail to repay a small loan, you could end up borrowing again for help, which can lead to a cycle of debt.
These loans should be a last resort in an emergency.
Cash advance app
Cash advance apps let you borrow small amounts — often about $200 or less — from your next paycheck. In exchange, you pay a monthly subscription fee or optional tip, which are small, but can add up.
Rather than using credit information to qualify you, most apps require access to your bank account and transaction history to determine how much you can borrow. The apps withdraw the amount you’ve borrowed from your bank account within two weeks or on your next pay day.
Credit card advance
You can use your credit card to get a short-term cash loan from a bank or an ATM. It’s a convenient, but expensive way to get cash.
Interest rates tend to be higher than those for purchases, plus you’ll pay cash advance fees, which are often either a dollar amount (around $5 to $10), or as much as 5% of the amount borrowed.
This is a secured personal loan. You borrow against an asset, such as jewelry or electronics, which you leave with the pawnshop. If you don’t repay the loan, the pawnshop can sell your asset.
Rates for pawnshop loans are very high and can be around 200% APR. But they're likely lower than rates on payday loans, and you avoid damaging your credit or being pursued by debt collectors if you don’t repay the loan; you just lose your property.
A payday loan is a type of unsecured loan, but it is typically repaid on the borrower’s next payday, rather than in installments over a period of time. Loan amounts tend to be a few hundred dollars or less.
Payday loans are short-term, high-interest — and risky — loans. Most borrowers wind up taking out additional loans when they can’t repay the first, trapping them in a debt cycle. That means interest charges mount quickly, and loans with APRs in the triple digits are not uncommon.