Online reviews come in many forms, shapes and sizes and at a time when more people are taking out personal loans, we wanted to take a closer look at the types of online personal loans that are available.
Types of Loans
The majority of personal loans are of the unsecured type, with fixed payment terms, like fast personal loans provider in NZ. There are other types of loans out there though, as we will explore now – including unsecured personal loans.
Unsecured Personal Loans
Unsecured loans are not backed by any type of collateral – collateral can come in several forms, such as a car or home. Essentially, if you default on your loan then your car, for example, can be seized and sold at auction to pay off the loan.
With unsecured loans however there is no such protection for lenders, and what this means is that a lender will most likely charge a higher APR. The APR is the total amount you pay in fees (if there are any) and the interest rate – it does not include the borrowed amount.
Secured Personal Loans
As you might guess from the above section, this type of loan is backed by collateral and can be seized in the event you cannot repay the loan for whatever reason. Mortgages can be called secured loans (with the house as collateral) and car loans can be too.
There are some credit unions, banks and online lenders that can offer secured loans – these allow you to borrow against savings, your car, or other assets such as bikes or high-ticket items in your home (PCs, games consoles, TVs, etc.).
The rates are typically lower than unsecured loans because lenders don’t see them as being as risky.
The majority of personal loans come with fixed rates. What this means is that your rate, and monthly payment amounts, don’t change.
This type of loan might make sense to you if you need consistent payment amounts each month and if you don’t like the idea of potentially rising rates on longer-term loans. Having fixed rates also makes payments easier to budget for.
The interest rates on this type of loan are tied to benchmark rates that are set by banks. Depending on how this rate fluctuates, the rate of your loan, total interest rates and monthly payment amounts can fluctuate too – either up or down.
A benefit of variable-rate loans is that they often carry lower APRs than fixed-rate loans do.
Debt Consolidation Personal Loans
A debt consolidation loan combines several debts into one new, single loan. A lender should be sure that this type of loan carries a lower APR than the rates already being paid on the other debts – this ensures that you pay less interest on the new debt than the existing ones. This type of debt also makes life a little easier because just one payment per month is made, rather than several separate ones – also making it harder to forget a payment.
A co-signature loan is for those borrowers that have sparse or zero credit history who may not otherwise qualify for a loan by themselves. A co-signer, essentially, promises to pay off the loan if the borrower cannot – the co-signer is acting as a type of insurance for the loan provider.
When you add a co-signer, that has a strong history, you are greatly improving your chances of qualifying for the loan and you are more likely to gain favorable rate terms on that loan.