9 Different Types of Personal Loans to Know

Maybe you need to pay off credit card debt, catch up on bills, make a cross-country move, plan a wedding or cover an emergency car repair. Regardless of the reason, if you need to borrow money, you might feel a little unsure of where to begin. With so many types of personal loan options available, choosing the right fit for your financial needs may be a challenge.

In this breakdown, we'll explore nine types of personal loans and their uses to help you narrow down your search and zero in on a solution that may help you reach your goals.

What is a personal loan?

A personal loan is a type of loan that allows consumers to borrow from a bank, credit union or online lender. When you take out a personal loan, you agree to borrow a certain amount of money from the lender. You then repay the loan over time with interest, usually in monthly installments. Personal loans typically have fixed interest rates, meaning your payments stay the same throughout the loan term (the predetermined length of time for repayment), which can make budgeting easier.

How to get a personal loan

Getting a personal loan typically involves a few steps.

• First, you'll need to decide what you’ll use the personal loan for and how much money you need to borrow.

• Then, you should shop around and compare offers from different lenders to find the best interest rate and terms for your personal needs and financial situation.

• Once you've chosen a lender, you'll fill out an application with your personal information. The lender will use this information to determine your creditworthiness.

Secured vs unsecured personal loans

If you’re approved for a loan, you may see secured or unsecured next to your offer. A secured loan requires that you provide collateral, like a motor vehicle. An unsecured loan doesn’t require any collateral from you. Your lender will work with you to help you find a loan to fit your needs.

Secured

A secured loan is a type of personal loan backed by collateral, which is something of value like a car or RV. Secured loans often come with more options; you may get access to lower rates, lower payments or a higher borrowing limit. Keep in mind that in the case of a secured loan, there are eligibility requirements such as the condition and age of your motor vehicle and proof of insurance.

Also, if a borrower defaults on a secured loan, the lender has the right to take possession of the collateral to recover the amount owed.

Unsecured

Unsecured loans do not require collateral. Since this loan isn’t backed by something valuable, like a vehicle, your credit score plays a significant role in the terms you receive. Depending on your credit score, you might be offered a lower loan amount, higher interest rates and tougher approval odds.

9 types of personal loans and their uses

Personal loans may be used for a range of purposes, but here are 9 types of personal loans to know about.

1. Debt consolidation loan

A debt consolidation loan is a type of personal loan that could be used to pay off multiple debts like credit cards and medical bills. Consolidating balances of multiple accounts into a single loan may also give you peace of mind knowing that you have just one monthly payment and one due date to remember.

Plus, your new monthly payment could be lower if you snag a lower interest rate than your current monthly payments combined, freeing up a little extra money for other needs. However, debt consolidation loans can also extend the repayment period and potentially increase the total interest you’ve paid at the end, even if your monthly payment is less.

2. Emergency loan

An emergency loan is a type of personal loan that could be used to cover unexpected expenses like medical bills, car repairs, urgent travel and other costly sudden events. Emergency loans might get you the money you need quickly when you’re in a pinch.

3. Home improvement loan

If you’re ready to remodel your kitchen with energy-efficient upgrades, replace the roof or need to repair a leaky dishwasher and the resulting water damage, a home improvement loan may help. Finish the project now and protect the long-term value of your home — without the worry of having to pay one large bill upfront.

4. Medical loan

Sometimes, planned or unplanned medical procedures, emergency surgeries, dental work, infertility treatments and prescription drugs may cost too much to pay out of pocket. And even if you have insurance, you may owe a large deductible that could be beyond your budget.
A medical loan is a type of personal loan which may allow you or a loved one get care right away and repay the loan over time. This may help you to concentrate on your health — instead of a hefty medical bill.

5. Vacation loan

If you need to make it to your best bud’s wedding, a romantic anniversary escape, or your out-of-state high school reunion, but your budget isn’t quite prepared to pay for the trip all at once, a vacation loan could help. With this type of personal loan, you could take care of all your travel expenses, from flights and accommodations to meals and car rentals. A personal loan for a vacation may give you the freedom to enjoy the important moments that matter in your life and pay it back over time.

6. Wedding loan

No matter if it’s you who’s footing the whole bill or family is pitching in to help cover costs, paying for so many things in a short period of time can feel overwhelming. And many of the things needed to make the big day memorable often come with a big price tag. A wedding loan is a type of personal loan that may be used for all wedding expenses, from the engagement ring to the honeymoon — so you can focus less on costs and more on your special day.

7. Boat, motorcycle and RV loans

Whether you want to cruise the open seas or the open road, boat, motorcycle and RV loans are types of personal loans that could get you the financing you need to purchase the water or land vehicle of your dreams.

8. Auto repair loan

Car mechanical problems always seem to come at the worst time. So, if your car needs some TLC, an auto repair loan is a type of personal loan that may help cover everything from tires to transmission — so you can get back on the road fast.

9. Auto purchase and auto refinance loan

An auto purchase loan is a loan used to buy a new or pre-owned vehicle. Once approved, the purchased vehicle is typically used as collateral to secure the loan, and the buyer repays the lender.

An auto loan isn’t just a loan to buy a car or truck, it can also be used for a variety of vehicles, like:

• Motorcycles
• ATV’s; Side-by-sides
• Off-road motor bikes
• Crossovers
• Horse and utility trailers
• Lawn & garden lawn mowers; Mini excavators

When you choose a OneMain car loan, available at thousands of dealers across the nation,¹ you can get affordable auto financing without ever leaving the lot. Or if you’re buying from a private seller, apply online today or talk to your OneMain branch.

If you have a current car loan, depending on your current loan terms, refinancing a car loan with an auto refinance loan could change the duration of your loan, lower your interest rate or monthly payments — freeing up money for other expenses.

Keep in mind that many lenders have a single loan product that may be used for a variety of needs, and they may not refer to personal loans by uses, as we’ve done here. For example, instead of a “home improvement loan,” a lender may refer to their loan as a personal loan for home improvements.

How to choose the right type of personal loan for you

If you’re having a tough time deciding which personal loan is right for you, here are a few helpful questions to consider:

What is your credit score?

Your credit score will affect the interest rate you qualify for, so be sure to find out where your score stands. Other lenders may have different ways of evaluating applicants, but at OneMain, we work with a wide range of customer credit scores and take your whole financial picture into account to help you find a loan that’s right for you. You should also note that if you apply for a personal loan, your credit score may take a small dip, as it might with any hard inquiry a potential creditor submits to a credit bureau. Learn more about credit scores and how to connect your credit score to your financial goals.

How much money do you need?

Personal loans can be for smaller amounts, like $1,000, and loans for larger sums, like $50,000. OneMain loans generally range from $1,500 to $20,000. Your minimum and maximum loan amount, and actual loan terms, depend on your state of residence and your ability to meet our credit standards (including a responsible credit history, sufficient income after monthly expenses and availability of collateral).

Be realistic about your needs so you can find a loan that meets your goals.

What is your repayment timeline?

The length of the repayment period for a personal loan varies by customer and lender, but most personal loan pay off periods range between two and five years, so think about how long you would like to repay your loan. If you want to pay your loan off quickly, find a personal loan with a shorter repayment period. But if you need a lower monthly payment, a longer loan period may be a better fit, but you may end up paying more in interest by the end of the loan term.

What are the fees and interest rates?

Interest rates on personal loans can vary depending on the lender, your credit score and the length of the loan. OneMain Financial offers personal loans with Annual Percentage Rates from 18.00% - 35.99%. And, every OneMain personal loan has a fixed interest rate, which means your monthly payments will stay the same, as long as you pay on time, so you don't have to worry about it rising in the future.

Depending on the lender, some personal loans can include extra fees such as late fees, NSF fees, or an origination fee — a one-time fee to cover loan processing costs. As you compare loan options, look for offers with that fit your budget and offer terms that work in your favor.

Which personal loan is right for you?

With so many lenders and loan options available, it's important to choose the right personal loan for your needs. When comparing loans, pay attention to factors like the interest rate, loan term, and any fees or penalties associated with the loan.

If you have good credit, you may qualify for a lower interest rate, which can save you money over the life of the loan. On the other hand, if your credit is less than perfect, you may have to pay a higher interest rate or look for lenders that focus on your ability to repay the loan rather than your credit score.

Consider how much you can afford to borrow and repay each month, and make sure the loan terms fit your budget. It's also a good idea to read the fine print and understand any potential risks or drawbacks of the loan before you sign on the dotted line.

What type of personal loan is easiest to get?

If you have a low credit score, you may think you’ll have a hard time getting approved for a personal loan. But that’s not always the case.

A secured personal loan may be much easier to qualify for because its’ less risky for the lender. Since this type of personal loan requires an asset as collateral, the lender may be more likely to approve the loan at a lower interest rate and higher loan amount.

As you research what type of personal loan is easiest to get, it helps to search for reputable lenders who look at more than just your credit score when reviewing your loan application. Different lenders may have different ways of evaluating applicants. But at OneMain Financial we look at loan applications more holistically, taking your entire financial situation into consideration.

Types of personal loans to avoid

Some loans may be easier to get but could be much harder and more expensive to pay off. These types of personal loans often have higher interest rates and fees, which could end up costing you more money in the long run. They may also damage your credit if you have problems keeping up with the growing costs. These loans could include:

Payday loans

Payday loans are short-term cash loans only available in some states, generally for less than $1,000. Although the convenience of this loan may seem appealing, annual percentage rates of 400% or more², unaffordable repayment terms and aggressive collection tactics may make a payday loan a risky financial choice.

Title Loans

Title loans are secured loans that use your car or titled vehicle as collateral. Title loans usually have high interest rates and fees, making this type of loan a very expensive option. Title loans can be tempting for quick cash, but if you're unable to repay the loan, the lender can repossess and sell your car to recover losses, potentially leaving you without transportation and still owing money on the loan.

Pawnshop loans

Pawnshop loans are short-term, high-interest loans that use your personal belongings as collateral. If you’re unable to repay the loan on time, the pawnshop may charge additional fees or penalties, sell your items and hold you responsible for paying the balance if the selling price of your collateral is less than the loan amount.

Find the right type of personal loan for you

Whether you’re looking to consolidate debt, fund a car repair or cover an unexpected expense, a personal loan may be the right option for you. Just be sure to do your research and compare interest rates, terms and lenders before you apply. As always, each type of loan has its own eligibility requirements, associated risks and costs. It’s important to consider your needs and financial situation before deciding which option fits your budget.

If you’re not sure which type of personal loan is right for you, consider contacting a OneMain loan specialist today to learn more about our personal loans to help you find options that fit your specific financial needs.

Looking for a personal loan to consolidate debt, pay off credit cards, make home improvements or handle other urgent expenses? Take a few moments to to see if you have a prequalified offer from OneMain. Checking for offers does not affect your credit score.

Sources:

1. If a vehicle is sold by an auto dealership not participating in OneMain’s auto purchase program, OneMain cannot accept the vehicle as collateral for an auto purchase loan. To find out if your auto dealership participates in our program, ask them or contact your local OneMain branch.
   
2. https://paydayloaninfo.org/

This article has been updated from postings occurring from 2021-2023. Jessica Leshnoff contributed to this post.