If you are searching for a personal loan under $5000, then you have a few options. The best personal loan type for you depends on your needs, financial history, and how well you meet certain loan requirements. We have listed a few of the most common personal loan options below.
Five Popular Personal Loan Types
Unsecured Personal Loans. Unsecured personal loans are named as such due to there being no requirement of collateral. You don’t have to offer anything up to receive the loan. You will then typically repay the lender in installments. Generally, payments are made monthly and the repayment period can last from a year to six years.
These loans usually require you to have good credit being no collateral is required. Your credit score can affect the interest rate of your unsecured loan. On the whole, these loans can have higher interest rates because the lender is taking a risk by not asking for collateral. Should you fail to repay your loan, your credit score could take a hit.
Payday Loans. Payday loans are also known as cash advance loans. This type of loan does not require any collateral. A lender will provide you with a lump sum of money in the form of an advance on your next paycheck. You will then need to repay the loan when you receive your next paycheck. Many payday loan periods are thirty days or less.
Payday loans generally do not require you to have good credit and do not require a hard credit check. Instead, lenders check that you can repay your loan, meaning you have a regular source of income. Due to this, they are usually fast and easy to secure. Interest rates can be higher with payday loans. The amount you can receive as well as typical APR vary by lender and by state. Be sure to use a reputable money lender.
Secured Personal Loans. On the other hand, secured personal loans require collateral. A loan is only extended to you once you offer some type of asset to back the loan. Assets can be savings accounts, car titles, or real estate. The lender determines what type of collateral they will accept. The majority of lenders tend to favor money or savings accounts as collateral. You generally are required to make regular payments as per a payment plan in order to pay off the loan and keep your collateral.
Because these loans don’t pose as much risk to lenders, the interest rates may be lower. This loan type is also suitable for individuals with poor credit or average credit because it is backed by a valuable asset. Should you fail to repay your loan the lender can claim all or a portion of your collateral as repayment.
Title Loans. A title loan is like a secured loan in that it requires collateral. The collateral required is in the form of a title. This is usually a car title loan. These loans don’t depend on your credit rating and approval is generally fast. The loan is repaid either in a lump sum or in monthly installments. The loan period is often short, as in thirty days, but sometimes can extend to a year or longer.
Lenders have different requirements about what type of collateral they will accept. In the case of car title loans, they may only accept vehicles valued above a certain threshold. Title loans can have very high APRs. Additionally, should you default on the loan your car or whatever the title belongs to can be instantly repossessed.
Credit Card Advances. A credit card advance is a cash advance against a credit card that you possess. You borrow against your card to receive cash now. It can be thought of as a purchase using your credit card to buy paper money. Many lenders have stipulations about how much money you can borrow. The amount is frequently a few hundred dollars or less.
If you already have a line of credit this can be away to get your hands on cash fast. However, this type of loan also has high-interest rates and APRs as well as transaction fees. You are required to pay the advance back as you would make payments on a typical credit card balance. Failure to repay the advance can affect your credit score.
Pawn Shop Loans. A pawn shop loan is yet another example of a collateral-based loan. You must offer up something of value to the lender, which is the pawnshop. Accepted collateral is usually things like jewelry, collectibles, or antiques. If the pawnshop owner assesses your item to be valuable they will extend a loan and keep your item until you repay the loan.
The interest rates for pawnshop loans can be high, and they are usually termed as fees. After your loan period is complete, generally thirty days to a few months, you return to pay off the loan and take home your item. Pawnshop loans usually don’t take into account your credit score. They generally don’t affect your credit score either. Should you default on the loan the pawnshop owner gets to keep your item to sell.
Which Personal Loan is Right For You?
When considering which type of personal loan to take you should think about a few factors. This can include how much money you need and how quickly you need it. Additionally, consider if you meet the loan requirements and if you can repay the loan according to the lender’s terms. There are all sorts of personal loan options, meaning there is liking one out there that will suit your needs.