Getting a personal loan can be extremely helpful in funding major expenses, whether you want to pay off credit cards at a lower interest rate or catch up on outstanding bills. There are several different types of loan products available to borrowers depending on how much money you need and how long you want to take to repay your loans. Here is a breakdown of the most common personal loans.
Personal Loans from a Bank or Credit Union
Banks and credit unions are traditional financial institutions offering personal loans. Most require at least a fair credit score, although they typically do not require any collateral for the loan. As with most loans, you will receive a lower interest rate if you have a higher credit score. Financial institutions also offer larger loan amounts compared to most other lenders. The repayment term varies, usually lasting up to five years.
Peer-to-Peer (P2P) Loans
Peer-to-peer loans are an alternative option and especially beneficial to borrowers with less than perfect credit. Your loan is crowdfunded by multiple individual investors who receive returns on the interest you pay. You’ll pay higher interest for lower credit scores, but because the rate of return is higher for investors, these types of loans often reach full funding. Repayment lasts between three and five years.
Payday loans are short-term loans with the original repayment term typically lasting no more than one month. These loans aim to help individuals with poor or no credit meet their immediate financial needs. Loan amounts vary by state, but usually max out between $500 and $1500. Because payday loans are not installment loans, meaning they are paid back in one lump sum at the end of the term, lenders charge a fee rather than ongoing interest.
The fee is charged based on the amount borrowed, such as $15 for every $100. Most payday loans can be extended past the original due date, but you will have to pay additional fees.