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6 Types of Personal Loans and When They’re Best

Common types of personal loans include unsecured, debt consolidation and co-signed loans.

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Updated · 3 min read
Nicole Dow
Written by 
Lead Writer & Content Strategist
Kim Lowe
Edited by 
Head of Content, Personal & Student Loans
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

1. 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, than with a secured personal loan. The APR is your total cost of borrowing and includes the interest rate and any fees.
Whether you’re approved for an unsecured personal loan and at what APR are mainly based on your credit score, income and other debts. Rates are typically from 6% to 36%, and repayment terms are from two to seven years.
When it’s best: An unsecured personal loan is best for large, one-time expenses and nondiscretionary spending that helps you reach your financial goals. Look for a loan with a low APR and monthly payments that fit your budget.
» COMPARE: Our picks for unsecured personal loans
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2. Secured personal loans

Secured loans are backed by collateral, which the lender can seize if you don't 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 a personal loan with 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.
When it’s best: A secured loan may be a good idea if adding collateral increases your loan size or lowers your rate. Weigh the benefits of a better loan against the potential risk of losing your collateral.
» COMPARE: Best secured personal loans
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3. Debt consolidation loans

A debt consolidation loan rolls multiple unsecured debts — such as credit cards, medical bills and other high-interest loans — into one new loan, leaving you with a single monthly payment. Some lenders that specialize in debt consolidation and credit card refinancing send loan funds directly to your other creditors.
When it’s best: A debt consolidation loan is best if the loan carries a lower APR than the rates on your existing debts. This will save you money on interest so you can pay the debt off faster.
» COMPARE: Best debt consolidation loans
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MORE DEBT CONSOLIDATION LOANS

4. Co-signed and joint loans

Applying for a personal loan with 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.
A co-signer promises to repay the loan if the borrower doesn't, but that person doesn’t have access to the loan funds. A co-borrower on a joint loan shares responsibility for repayment and can access the funds. Missed payments hurt both of your credit scores on a co-signed or joint loan.
When it’s best: Co-signed and joint loans are best for borrowers who can’t qualify for a personal loan themselves or who want a lower rate.
» COMPARE: Personal loans with a co-signer
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5. Personal line of credit

A personal line of credit is revolving credit, so the money is drawn and repaid like with a credit card. Rather than a personal loan’s lump sum of cash, a credit line gives access to funds you can borrow from as needed. You pay interest only on what you borrow. Banks commonly offer personal lines of credit.
When it’s best: A personal line of credit works best when you need flexibility in your loan amount or for a large ongoing expense, like a home improvement project.
» MORE: What is a personal line of credit?
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6. Buy now, pay later loans

“Buy now, pay later” loans let you split a purchase into smaller installments. At checkout, you create an account with a BNPL company, pay for part of the purchase and authorize the app to charge you the rest of the balance, usually in biweekly installments.
These companies don’t require good credit to qualify you, but BNPL apps may do a soft credit pull. There may be fees or interest on your BNPL loan, depending on the lender.
When it’s best: BNPL is best for necessary, one-time purchases that you wouldn’t otherwise be able to pay for with cash. It can be a good financing option if you don’t have a credit card or get a zero-interest offer.
» MORE: Compare BNPL apps
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6 types of loans to avoid

Loans that have high APRs and short repayment terms can be difficult to repay on time. If you can’t make the payments, you could end up borrowing again, which can lead to a cycle of debt.
These loans should be a last resort in an emergency.

1. Cash advance app

Cash advance apps let you borrow small amounts — maximums are often $200 to $500 — from your next paycheck. Most apps charge a fast-funding fee and request an optional tip, and some charge a monthly subscription fee. These fees 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 repayment from your bank account within two weeks or on your next payday.

2. 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 a flat dollar amount (around $10) or as much as 5% of the amount borrowed – whichever is greater.

3. Pawnshop loan

This is a secured 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 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.

4. Payday loans

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 fees accumulate quickly, and loans with APRs in the triple digits are not uncommon.
» MORE: What are payday alternative loans?

5. Title loans

A title loan is a type of secured loan that uses your vehicle as collateral. If you can’t repay the loan, you could end up losing your car.
You can typically borrow between 25% to 50% of the vehicle’s value, so if your car is worth $6,000, you could borrow between $1,500 to $3,000. Usually, you’ll need to own your vehicle outright.
Title loans are short-term, usually due within 15 to 30 days, though some lenders let you pay in installments over several months. Lenders charge triple-digit interest rates, making it an expensive way to borrow money.
» MORE: Learn the signs of predatory loans

6. 401(k) loans

A 401(k) loan lets you borrow money from your workplace retirement account. You can typically borrow up to the lesser of 50% of your vested balance or $50,000.
You’ll need to repay the loan balance plus interest within five years, but if you leave your job, the loan could come due sooner. If you don’t repay a 401(k) loan by the deadline, the IRS will treat the outstanding balance as a distribution, which could result in taxes and penalties.
Though 401(k) loans usually have lower interest rates than credit cards and personal loans, they can cost you in other ways. You’ll miss out on compounding earnings because your money isn’t invested. If you contribute less in order to make loan payments, you’ll reduce your retirement savings even further.
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Frequently Asked Questions
What can you use a personal loan for?

You can use a personal loan for almost any purpose. The best reason to get a personal loan is to improve your financial situation, like consolidating high-interest debt or tackling a home improvement project that’ll increase the value of your home. Some lenders restrict borrowers from using personal loans in particular instances, such as paying college tuition.

Where can you get a personal loan?

You can get a personal loan from a bank, credit union or online lender. The best offer is usually the one with the lowest interest rate and monthly payments that fit your budget. Pre-qualify with multiple lenders to compare offers.

What do you need to qualify for a personal loan?

Reputable lenders will check your credit, income and existing debt to determine if you qualify for a personal loan. Having a good credit score, a low debt-to-income ratio and a solid employment history often gives you the best selection of loan offers.

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NerdWallet writers are subject matter authorities who use primary, trustworthy sources to inform their work, including peer-reviewed studies, government websites, academic research and interviews with industry experts. All content is fact-checked for accuracy, timeliness and relevance. You can learn more about NerdWallet's high standards for journalism by reading our editorial guidelines.
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Methodology

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How we chose the best personal loans

Our team of consumer lending experts follow an objective and robust methodology to rate lenders and pick the best.

35+

Lenders reviewed

We review over 35 lenders, including major banks, top credit unions, leading digital platforms, and high interest installment lenders operating across multiple states.

25+

Categories assessed

Each lender is evaluated across five weighted categories and 27 subcategories, covering affordability, eligibility, consumer experience, flexibility, and application process.

70+

Data points analyzed

Our team tracks and reassesses hundreds of data points annually, including APR ranges, fees, credit requirements, and borrower tools, ensuring up to date, accurate comparisons.

Star rating categories

We evaluate more categories than competitors and carefully weigh how each factor impacts your experience.

Affordability 25%

We review lenders’ annual percentage rate offerings at least twice per year and the competitiveness of each lenders’ APR range. We also assess whether a lender charges an origination fee and any opportunity for borrowers to receive a rate discount.

Customer experience 20%

We consider the experience of the consumer trying to manage a personal loan, which means accessibility of customer service representatives, whether borrowers can choose and change their payment due date, and the ability to track their loan on a mobile app.

Underwriting and eligibility 20%

We consider the rigorousness of each lender’s underwriting practices and how widely available their loans are. This category includes whether a lender does a hard credit check before providing a loan, the range of credit profiles they accept and how many states their loans are offered in.

Loan flexibility 20%

We assess how flexible lenders can be with borrowers, including whether they offer multiple loan types, personal loan amounts and repayment term options and whether they offer direct payment to creditors on debt consolidation loans.

Application process 15%

We consider the lender’s full application process, including a borrower’s ability to preview their loan offer via pre-qualification, whether basic loan information such as APR range and repayment terms are available and easy to find online and how quickly a loan can be funded after approval.

5.0
Overall score

NerdWallet’s review process evaluates and rates personal loan products from more than 35 financial technology companies and financial institutions. We collect over 70 data points and cross-check company websites, earnings reports and other public documents to confirm product details. We may also go through a lender’s pre-qualification flow and follow up with company representatives. NerdWallet writers and editors conduct a full fact check and update annually, but also make updates throughout the year as necessary.

Our star ratings award points to lenders that offer consumer-friendly features, including: soft credit checks to pre-qualify, competitive interest rates and no fees, transparency of rates and terms, flexible payment options, fast funding times, accessible customer service, reporting of payments to credit bureaus and financial education. Our ratings award fewer points to lenders with practices that may make a loan difficult to repay on time, such as charging high annual percentage rates (above 36%), underwriting that does not adequately assess consumers’ ability to repay and lack of credit-building help. We also consider regulatory actions filed by agencies like the Consumer Financial Protection Bureau. We weigh these factors based on our assessment of which are the most important to consumers and how meaningfully they impact consumers’ experiences.

NerdWallet does not receive compensation for our star ratings. Read more about our ratings methodologies for personal loans and our editorial guidelines.

Helpful resources

The Best Ways to Borrow Money
Personal Loan Calculator
Debt-to-Income Ratio: How to Calculate Your DTI
What Is an Annual Percentage Rate (APR) on a Personal Loan?
See if you pre-qualify for a personal loan – without affecting your credit score Just answer a few questions to get personalized rate estimates from multiple lenders.
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Comparing options? See if you pre-qualify for a personal loan - without affecting your credit score Just answer a few questions to get personalized rate estimates from multiple lenders.
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