Personal loans are typically unsecured credit with monthly fixed payments. They are usually paid back over two to seven years. Although unsecured loans with fixed-rates are the most common types of personal loans, they come in other options as well.

Which loan is the best option for you? This depends on different factors including your credit score and the amount of time you want to take to pay it back.

What are the different types of personal loans?

  • Fixed-Rate. This is common with personal loans. The monthly payments will not vary like a credit card minimum payment. It stays the same amount over the life of the loan. The benefit of this is that you never have to worry about your rate going up and you have a regular monthly payment that won’t change, so you won’t have any surprises.
  • Variable-Rate. Unlike the fixed-rate loan, variable rates can change. The banks set a benchmark for the interest rate. This is beneficial in times of low rates, but your rate can fluctuate at any time, meaning your monthly payment can unexpectedly rise.
  • Unsecured. This is the most popular type of personal loan. It’s not backed by collateral, like your car or your home. Interest rates may be a bit higher, as there is no property for the lender to seize if you default on the loan. The interest rates on unsecured personal loans can vary from 5 to 36 percent, and the rate you get depends a lot on your credit score.
  • Secured. These loans are secured by collateral and this can be seized by the lender if you default on your loan. Some banks will let you use personal savings accounts as collateral. Since these loans aren’t considered as risky, a benefit of these is that you will often find lenders offer lower rates on them.
  • Debt Consolidation. This loan takes all of your debt and rolls it into one loan. You want to look for a loan rate that is lower than the individual rates you are currently paying. This will save you from paying high-interest rates and it simplifies your bills by consolidating them into one monthly payment.
  • Cosigner loans. If you have a low credit score or little to no credit history, you may have trouble securing a loan. Getting your loan cosigned might be the answer. A cosigner guarantees payment if you default on your loan. This makes you less of a risky prospect to lenders and makes it easier to secure credit.
  • Overdraft credit. In this line of credit, your bank will let you overdraft your account by a specified amount, without incurring fees or bounced checks. This is good to have set up in case of unforeseen emergencies. However, interest rates are usually higher than traditional loans.

A personal loan can be a great tool for getting you out of a financial fix. But they need to be used responsibly. Don’t take out more money than you can afford to pay back. It’s best to sit down and take a careful look at your budget. Be sure you can afford that extra monthly payment before securing a line of credit.