Types of Personal Loans to Fit Different Needs
Updated
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At some point in your life, you will need to borrow money. Whether it's to pay for unexpected expenses, fund a home renovation, or consolidate debt, a personal loan can be a great option.
You may be wondering: What is a personal loan? A personal loan is a lump sum of money that you borrow and pay back in monthly installments at a fixed rate of interest.
However, not all personal loans are created equal, and it's important to understand the different types of personal loans available and their respective pros and cons. Personal loans fall into two categories: unsecured loans and secured loans.
Secured loans are backed by collateral such as property, cars, and other assets. Unsecured loans do not require collateral. For both types of loans, your credit score is an important factor in the interest rate and loan terms you receive. Understanding how these personal loans work can help you make a smarter decision. Let's take a closer look at different personal loan options.
An unsecured personal loan is not secured by any collateral. As a result, unsecured loans are a higher risk for financial lenders. Consequently, these loans typically have higher interest rates than secured personal loans. However, unsecured loans can be useful for those who do not have collateral to pledge, as well as for those who don't want to risk losing their property if they can't repay the loan.
Lenders typically require a higher credit score to qualify for an unsecured loan. Common examples of unsecured loans are credit cards and payday loans. Here are more types of unsecured loans.
Home improvement loans pay for home renovations. You might borrow to pay for a kitchen or bathroom remodel, or home repairs.
Home improvement projects can increase your enjoyment of your home and also add value when you sell your home. According to the Zillow Group Consumer Housing Trends Report 2022, 71% of homeowners make at least one home improvement (e.g. painting, redecorating, kitchen improvement, new appliances, replacing/repairing flooring, etc) when preparing to sell their home.
New research also reveals that the average homeowner is ready to invest a substantial $42,000 in revamping their home's appearance.
Get the best rates and terms to fit your needs. Here are a few loans we'd like to highlight, including our award winners.
| Lender | APR Range | Loan Amount | Min. Credit Score | Next Steps |
|---|---|---|---|---|
Rating image, 5.0 out of 5 stars.
5.0/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
Fixed: 8.99%-29.99% APR (with all discounts)
|
$5,000 - $100,000
|
680
|
|
Apply Now for Discover Personal Loan
Powered by Credible
Rating image, 5.0 out of 5 stars.
5.0/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
7.99% - 24.99%
|
$2,500 - $40,000
|
660
|
Apply Now for Discover Personal Loan
Powered by Credible |
Rating image, 4.0 out of 5 stars.
4.0/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
6.70% - 35.99%³
|
$1,000 - $50,000¹
|
300
|
Debt consolidation loans are used to pay off multiple debts. These could be balances on credit cards, personal loans, or other types of debt.
As the name suggests, debt consolidation loans enable you to combine multiple high interest debts into a single loan, often with a lower APR and a fixed rate. This type of personal loan can help simplify your finances, as you'll only need to make one monthly payment.
It can also reduce the amount of interest you'll pay over time. However, be cautious about taking on too much debt, as you could end up in a worse financial position than before.
Peer-to-peer (P2P) loans are loans from other individuals. Financial institutions are cut out as the middleman. Many websites facilitate P2P loans between individual borrowers and lenders.
Need a loan? Check out Motley Fool Money's guide to the best peer-to-peer lenders.
P2P lending is also known as "social lending" or "crowd lending," and is a relatively new alternative source of loans. P2P is best for people who want to avoid the red tape of large financial institutions and get access to funds relatively quickly.
P2P websites match lenders with potential borrowers. Borrowers apply for a personal loan on the website and investors can select who they want to lend money to. Borrowers can receive P2P loans from multiple investors.
Payday loans are short-term loans designed to cover a financial shortfall until your next paycheck. These loans are notorious for their sky-high interest rates and fees and can quickly spiral out of control if you can't repay the loan on time.
Payday loans are generally for $500 or less, and repayment is due on your next payday. Currently, 37 states regulate payday loans due to high costs. Depending on state laws, people can get payday loans online or through a storefront lender.
A typical two-week payday loan can have annual percentage rates (APR) as high as 400%. In comparison, credit card APRs can range from 12% to 30%. While payday loans may seem like a quick fix, they should be avoided at all costs, as there are almost always better borrowing options available.
RELATED: Payday Loan Alternatives
TIP
If you're curious how loan interest rates affect your monthly payment amount and payoff time, play around with our debt repayment calculator to try out different scenarios.
A secured personal loan is backed by collateral. Examples include auto loans and home mortgages. Because of the reduced risk to the lender, secured personal loans offer lower interest rates and can be easier to qualify for than unsecured personal loans.
However, there is a downside: If you fail to repay your secured personal loan, the lender can repossess the collateral to recoup its losses. Therefore, it's essential to ensure that you can repay this type of loan before taking one out. Here are a few common types of secured loans.
Credit builder loans are primarily designed to help people improve their credit scores. With this type of loan, the borrower will put cash into an account to be used as collateral. The borrower will borrow against the collateral and pays the principal and interest back to the lender. The lender then reports the payment to the credit bureaus.
A good credit score is essential to get the best interest rates and loan approval. Those who have bad credit and need to establish credit history can use credit builder loans to help increase their score.
Due to the cash collateral, people with no or poor credit can qualify for credit builder loans. Once the loan is paid off, the borrower will get their collateral back.
Auto loans are a popular choice for financing the purchase of cars. With the average price of a new car reaching close to $49,000, many individuals rely on auto loans to make their vehicle purchase possible. These loans allow you to secure the funds needed for your vehicle by using the car itself as collateral.
People purchasing a car will typically need to take out an auto loan. When a financial institution gives you a car loan, you receive a lump sum to pay for the car. Your monthly payment is based on the price of the car, interest rate, and the length of the loan. The loan terms are typically 36-72 months.
Pawn shop loans are short-term loans people get at pawn shops that are secured by an item of value. Since they are backed by the item, pawn shop loans offer lower interest rates than payday loans, but they are more expensive than conventional loans. Like payday loans, pawn shop loans are also regulated by the government.
The loan terms vary depending on the pawn shop. People can use items of value (such as jewelry or electronics) to get a loan based on the item's value. There is no credit check.
Those who may not be approved for a traditional loan may want to consider a pawn shop loan. Once the loan amount is paid back, you will receive your item back. If you do not pay it off, then the pawn shop can seize the collateralized items.
If you are considering taking out a personal loan, it's important to know what to look for in a lender. First and foremost, make sure to compare interest rates from different lenders to get the best deal.
Additionally, look into fees and other charges, such as origination fees, late payment fees, and prepayment penalties. And consider how long it will take the loan to be funded. If approved, how long until you get your money? Some financial institutions will send the money straight into your bank account as early as the same or next business day.
Another important factor is the loan repayment term -- longer terms may result in lower monthly payments, but also mean paying more in interest over time.
Finally, consider the lender's reputation and customer service track record. How is the application process? Reading reviews and doing your own research can help ensure that you choose a trustworthy lender. By keeping these factors in mind, you can make an informed decision and find a personal loan that works best for your needs and budget.
READ MORE: 6 Questions to Answer Before Getting a Personal Loan
Looking for a personal loan but don’t know where to start? Our favorites offer quick approval and rock-bottom interest rates. Check out our list to find the best loan for you.
It depends on your individual financial situation and credit score. If you don't have good credit or a long credit history, one option is a secured personal loan, which requires you to put up collateral to secure the loan. Payday loans are often the easiest loans to qualify for, but they're best avoided because the interest rates are exorbitant.
Personal loans can be used for a variety of purposes, such as to consolidate debt, make home improvements, or to fund large purchases like a car. Personal loans can also be used to cover unexpected expenses, like medical bills or emergency home repairs.
With competitive interest rates and flexible repayment terms, personal loans can provide borrowers with the financial assistance they need to achieve their goals without having to dip into their savings or rack up high-interest credit card debt.
There are a variety of options for obtaining a personal loan, including personal loans offered by banks, credit unions, online lenders, and P2P lenders.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Motley Fool Money does not cover all offers on the market. Motley Fool Money is 100% owned and operated by The Motley Fool. Our knowledgeable team of personal finance editors and analysts are employed by The Motley Fool and held to the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands. Terms may apply to offers listed on this page.
Please note that this calculator is not personalized financial advice and should not be considered or used as such. Nor are we promising that by use of this calculator, will you be able to save more money, preserve wealth, or otherwise.
*Upstart Loan Disclaimer
¹ Your loan amount will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will qualify for the full amount. Minimum loan amounts vary by state: GA ($3,100), HI ($2,100), MA ($7,000).
³ The full range of available rates varies by state. A representative example of payment terms for an unsecured Personal Loan is as follows: a borrower receives a loan of $10,000 for a term of 60 months, with an interest rate of 18.60% and a 8.51% origination fee of $851, for an APR of 23.07%. In this example, the borrower will receive $9149 and will make 60 monthly payments of $258. APR is calculated based on 5-year rates offered in December 2024. There is no downpayment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved.
*SoFi Personal Loan Disclaimer
Fixed rates from 8.99% APR to 29.99% APR. APR reflects the 0.25% autopay discount and a 0.25% direct deposit discount.
SoFi Platform personal loans are made either by SoFi Bank, N.A. or , Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. SoFi may receive compensation if you take out a loan originated by Cross River Bank. These rate ranges are current as of 3/06/23 and are subject to change without notice.Not all rates and amounts available in all states. See SoFi Personal Loan eligibility details at https://www.sofi.com/eligibility-criteria/#eligibility-personal. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, income, and other factors.
Loan amounts range from $5,000–$100,000. The APR is the cost of credit as a yearly rate and reflects both your interest rate and an origination fee of 9.99% of your loan amount for Cross River Bank originated loans which will be deducted from any loan proceeds you receive and for SoFi Bank originated loans have an origination fee of 0%-7%, will be deducted from any loan proceeds you receive.
Autopay: The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Autopay is not required to receive a loan from SoFi.
Direct Deposit Discount: Direct Deposit Discount: To be eligible to receive an additional (0.25%) interest rate reduction on your Personal Loan (your “Loan”), you must set up Direct deposit with a SoFi Checking and Savings account offered by SoFi Bank, N.A., or enroll in SoFi Plus by paying the SoFi Plus Subscription Fee, all within 30 days of the funding of your Loan. Once eligible, you will receive this discount during periods in which you have enabled Direct Deposit to an eligible Direct Deposit Account in accordance with SoFi’s reasonable procedures and requirements to be determined at SoFi’s sole discretion, or during periods in which SoFi successfully receives payment of the SoFi Plus Subscription Fee. This discount will be lost during periods in which SoFi determines you have turned off Direct Deposit to your Checking and Savings account or in which you have not paid for the SoFi Plus Subscription Fee. You are not required to enroll in Direct Deposit or to pay the SoFi Plus Subscription Fee to receive a Loan.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Motley Fool Money does not cover all offers on the market. Motley Fool Money is 100% owned and operated by The Motley Fool. Our knowledgeable team of personal finance editors and analysts are employed by The Motley Fool and held to the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands. Terms may apply to offers listed on this page.
Please note that this calculator is not personalized financial advice and should not be considered or used as such. Nor are we promising that by use of this calculator, will you be able to save more money, preserve wealth, or otherwise.
*Upstart Loan Disclaimer
¹ Your loan amount will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will qualify for the full amount. Minimum loan amounts vary by state: GA ($3,100), HI ($2,100), MA ($7,000).
³ The full range of available rates varies by state. A representative example of payment terms for an unsecured Personal Loan is as follows: a borrower receives a loan of $10,000 for a term of 60 months, with an interest rate of 18.60% and a 8.51% origination fee of $851, for an APR of 23.07%. In this example, the borrower will receive $9149 and will make 60 monthly payments of $258. APR is calculated based on 5-year rates offered in December 2024. There is no downpayment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved.
*SoFi Personal Loan Disclaimer
Fixed rates from 8.99% APR to 29.99% APR. APR reflects the 0.25% autopay discount and a 0.25% direct deposit discount.
SoFi Platform personal loans are made either by SoFi Bank, N.A. or , Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. SoFi may receive compensation if you take out a loan originated by Cross River Bank. These rate ranges are current as of 3/06/23 and are subject to change without notice.Not all rates and amounts available in all states. See SoFi Personal Loan eligibility details at https://www.sofi.com/eligibility-criteria/#eligibility-personal. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, income, and other factors.
Loan amounts range from $5,000–$100,000. The APR is the cost of credit as a yearly rate and reflects both your interest rate and an origination fee of 9.99% of your loan amount for Cross River Bank originated loans which will be deducted from any loan proceeds you receive and for SoFi Bank originated loans have an origination fee of 0%-7%, will be deducted from any loan proceeds you receive.
Autopay: The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Autopay is not required to receive a loan from SoFi.
Direct Deposit Discount: Direct Deposit Discount: To be eligible to receive an additional (0.25%) interest rate reduction on your Personal Loan (your “Loan”), you must set up Direct deposit with a SoFi Checking and Savings account offered by SoFi Bank, N.A., or enroll in SoFi Plus by paying the SoFi Plus Subscription Fee, all within 30 days of the funding of your Loan. Once eligible, you will receive this discount during periods in which you have enabled Direct Deposit to an eligible Direct Deposit Account in accordance with SoFi’s reasonable procedures and requirements to be determined at SoFi’s sole discretion, or during periods in which SoFi successfully receives payment of the SoFi Plus Subscription Fee. This discount will be lost during periods in which SoFi determines you have turned off Direct Deposit to your Checking and Savings account or in which you have not paid for the SoFi Plus Subscription Fee. You are not required to enroll in Direct Deposit or to pay the SoFi Plus Subscription Fee to receive a Loan.
