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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, 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 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.
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.
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.
» MORE: Compare secured personal loans
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.
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: Debt consolidation loans in your state
Personal loans from our partners
Co-signed and joint loans
Applying for a personal loan with a co-signer or co-borrower who has strong credit can elevate 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
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 getting a lump sum of cash, you get access to a credit line 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.
Buy now, pay later loan
“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; rather, BNPL apps review your bank account transactions and 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
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 don't 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 $250 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 repayment from your bank account within two weeks or on your next payday.
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 $5 to $10) or as much as 5% of the amount borrowed.
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 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.