- There are four basic personal loan types that you can choose from. These types include fixed rate, variable rate, the secured loan and the unsecured loan.
- The fixed-rate personal loan means that no matter what inflation does, you will have the same rate as you did at the beginning. A fixed-rate loan is a great way to guarantee that your interest rates do not go up higher than you expected. The great thing about a fixed rate is that will always know what the interest rate is that you are paying your loan down at. The problem with this is that fixed rates are often set at a comparatively high rate because they never change.
- The variable rate allows you to have an interest rate that you agree to in the beginning. Depending on how the economy goes and on the rate of inflation, your interest rate can increase or decrease. The chances of the interest rate decreasing are not as common as the interest rate increasing. Variable rates are great because they often have a lower interest rate than do other loans. The problem with this is that your low interest rate you started out with can skyrocket within a month.
- When you take out a secured loan, you have to be able to provide an asset for collateral for the loan. The asset will be the assurance that you will pay, because if you don't pay, the bank will be taking whatever you used as collateral. This is usually your house or car. A pro about secured loans is that if you fall behind, you are still going to be paying the bank via your collateral. The con about this is that if your collateral is your car, you won't be driving your car if you fall behind on payments.
- An unsecured loan is where the bank gives you a loan with no obligations. They expect you to repay the loan, but you do not have to have collateral to take out the loan. An unsecured loan shows good faith in the person who is taking the loan out. A great thing with the unsecured loan is that you having the bank put good faith in you to pay off the loan without any collateral. The problem with the unsecured loan is that if you default in payments, the penalty is going to be severe, such as the late fee charge doubling.