You have to be extra careful when deciding on the type of loan you want to get, personal loan is the best loan can get, one can acquire this loan for some reasons like education fees, to get a new house or even a holiday, they are the best because they are accompanied by lower interest rates and is also a long-term solution. Below are the types of personal loans you should know, by having this knowledge, you will be in a position to decide the best loan for you.

 

Secured loans
This loan will require putting your asset to act as security so that you can be in a position to borrow money from your lender. As for the bank, your security could be your car or your house. This simply means that your lender can possess your asset if you fail to repay the loan. You will get to enjoy the lower interest rates, and in the same vein, the bank will enjoy the security against default.

 

Pros:
Their interest rates are lower; this is because it has less risk for the lender.
It is easier to get secured bank loans.

 

Cons:
Defaulting on the loan lead to the borrower losing his precious assets, you can even end up without your car or your house.

 

Unsecured loans
This loan does not need you putting up an asset for the lender to act as security. This is a very suitable loan especially for those who do not have assets like a car or a house. With this loan, you have to convince your lender that you will be in a position to repay the loan, this can be done by may be providing him with your pay slips, it is always advisable to have a guarantor to get a loan if it is your first time applying for a loan.

 

Pros:
This is the best option if one does not have an asset.
It has lower interest rates than the credit cards,
It also has several deals of buying now pay later.

 

Cons
They impose a high fee penalty for those borrowers who make late payments.
Your lender is allowed to take legal action against you if you happen to default on the loan.
Most lenders impose higher interest rates compared to the secured loans.

 

Overdraft
This is a great loan to get in case you have an emergency. It lets you overdraw your account to a specific amount that is only established by the bank. You are just supposed to pay interest on the particular amount of money you have used but not on the maximum amount of money that you can borrow.

 

Pros
The interest is only charged on what one has used.
You are able to access extra money on an emergency.

 

Cons
Its interest rate is always higher than the other personal loans.

Fixed personal loans
This is an excellent loan option for those people who are salaried, managing loans that come with fixed rates are very easy. With this loan, your monthly payment and the rates stay the same for the entire life of that loan.

 

Pros
There is an increment of the rate.
Repayments are the same the entire life of the loan

 

Cons
Has higher rates compared to variable personal loans
If the market rates fall, one would definitely miss out on the lower rates
You are not allowed to make extra payments maybe if you would want to speed up the repayment.

 

Variable rate personal loans
Its rate can change any time in tire life of the loan, as the market rates fluctuate, this loan’s rates also vary.

 

Pros
As the interest rates decrease, your repayment also decreases.
Lower rates and fees are imposed on this type of loan.

 

Cons
With this loan, borrowers find it very difficult to budget because as the rates change, the repayments vary.
If it happens that the interest rates are higher, your repayment is also considered to be higher.

 

What to look for when choosing a personal loan
Avoid lenders who have early repayment fees
Borrow only what you can afford to repay
Your lender should provide you with flexible repayment options.