Managing Money

7 Types of Personal Loans

Credit card on dollars. Image concept of "is a balance transfer a good idea."
Written by

Explore options that accept collateral, allow cosigners, offer variable rates and more.

The most common type of personal loan is an unsecured fixed-rate loan. But you can also find loans that accept collateral, allow cosigners and offer rates that change over time. Which choice is best for you depends on your unique situation and how you plan to use the funds.

7 types of personal loans

  • Unsecured personal loan: Best for borrowers with excellent credit
  • Secured personal loan: Best for getting a better rate with average credit
  • Cosigned personal loan: Best for qualifying for a loan when you can’t meet requirements alone
  • Fixed-rate personal loan: Best for predictable monthly repayments
  • Variable-rate personal loan: Best for potentially lower rates that periodically change
  • Personal line of credit: Best for funding an ongoing project with unpredictable costs
  • Debt consolidation loan: Best for managing personal loan and credit card debt payments

Unsecured personal loan

  • Fast application and no risk of losing collateral
  • Harder to qualify for competitive rates and terms

An unsecured loan is the most common type of personal loan. It works by giving you all of the funds at once, which you repay plus interest and fees over a period of time — usually three to seven years.

What makes a personal loan unsecured is the fact that it doesn’t require collateral. This can speed up the application process, and you don’t risk losing your assets if you can’t pay it off. But it can be harder to qualify for a competitive rate unless you have strong credit and a low debt-to-income ratio.

How unsecured personal loans work

Secured personal loan

  • Easier to qualify for competitive rates and terms
  • Risk losing your collateral, potentially longer application

A secured personal loan works just like an unsecured loan, only you have to back it with collateral. If you can’t pay off the loan and go into default, the lender takes the collateral to recover its losses.

Common types of collateral include savings accounts and CDs, as well as personal possessions like a car or valuable jewelry. Because lenders consider secured loans less risky, they often come with lower interest rates than unsecured loans.

How secured personal loans work

Cosigned personal loan

  • Help meeting requirements on an unsecured loan for a better deal
  • Fewer lenders offer this option, risk damaging relationship with cosigner

A cosigned personal loan is usually an unsecured loan you apply for with another applicant, which you’re both equally responsible for repaying. Your lender often only considers the highest credit score and income between the two of you.

This makes it a viable choice if you have poor credit, little credit history or depend on your spouse’s income. It’s different from a coapplicant loan, where your lender consider both applications equally.

How cosigned personal loans work

Fixed-rate personal loan

  • Monthly repayments that are easy to plan for
  • Potentially pay more than a variable-rate loan if interest rates decrease

Most personal loans come with fixed interest rates, which stay the same while you repay the loan. This means you pay the same amount each month and can predict your total loan cost ahead of time. But you might end up paying more in interest than if you went with a variable-rate loan — especially if you have a long loan term.

How fixed-rate personal loans work

Variable-rate personal loan

  • Potentially pay less interest than a fixed-rate loan
  • Less predictable repayments with the risk of paying higher rates

Some personal loans come with variable rates, which can increase or decrease depending on changes in the economy — usually every three months. Variable rates can often go lower than fixed rates, but also come with the risk of being much higher. Since rates can change, it can be more difficult to plan ahead for repayments and predict your total loan cost.

How variable-rate personal loans work

Personal line of credit

  • Access to cash for ongoing projects like home improvements
  • Not ideal for a one-time expense

A personal line of credit gives you access to funds that you can draw from as needed. It’s similar to a credit card, but gives you access to cash and typically comes with lower rates. Each time you make a draw, you might either repay it in monthly installments plus interest and fees or have a minimum monthly repayment. Credit lines can be secured or unsecured with fixed or variable rates.

How a personal line of credit works

Debt consolidation loan

  • Have a lender pay off creditors for you
  • Fewer options than your standard unsecured personal loan

You can use any personal loan to pay off credit card balances and other debts to save on interest and have more manageable repayments. But some lenders offer personal loans designed specifically for debt consolidation. With these loans, the lender pays off your creditors for you, simplifying the process. While it might be easier, you have fewer options to compare and might not find as competitive a deal.

4 questions to help you choose the right type of loan

Still not sure which loan is right for you? Ask yourself the following questions:

  • What do I need the loan for?
  • Can I qualify on my own?
  • Am I willing to risk higher rates for potential savings?
  • How important is it that I can predict my repayments?

5 other types of loans

Looking to pay for a specific expense? Don’t have the best credit? Here are other types of loans to check out instead:

  • Student loans. Fund an undergraduate degree, certificate program, graduate degree and more with federal and private loans designed for students.
  • Car loans. Buy a car with a loan that uses your vehicle as collateral, either from a dealership or private seller.
  • Short-term loans. Small-dollar loans with high APRs and terms usually no longer than 18 months for all credit types.
  • Title loans. Fast, high-interest financing for all credit types backed by your lien-free car title.
  • Business loans. Financing designed to fit the needs of small businesses and startups, from working capital to buying equipment.

Bottom line

Getting the right type of loan can help maximize your savings, keep you from overborrowing or help you qualify if you can’t on your own.

This article originally appeared on

About the author