6 Types of Personal Loans and When They’re Best

Most personal loans are unsecured with fixed rates and payments. But there are other types of personal loans, including secured and co-signed loans. The type of loan that works best for you depends on factors including your credit score and how much time you need to repay the loan.

» MORE: Best personal loans

Most personal loans are unsecured, meaning they aren’t backed by collateral, such as your home or car. This makes them riskier for lenders, which may mean they charge a slightly higher annual percentage rate, or APR, than with a secured personal loan. The APR is your total cost of borrowing and includes the interest rate and any fees.

Whether you’re approved for an unsecured personal loan and at what APR are mainly based on your credit score, income and other debts. Rates are typically from 6% to 36%, and repayment terms are from two to seven years.

Secured loans are backed by collateral, which the lender can seize if you don't repay the loan. Examples of other secured loans include mortgages (secured by your house) and auto loans (secured by your car title).

Some banks and credit unions let borrowers secure a personal loan with savings or another asset. Online lenders that offer secured personal loans usually let you borrow against your car. Secured loan rates are typically lower than unsecured loan rates because they are considered less risky for lenders.

» MORE: Compare secured personal loans

» MORE: Secured vs. unsecured loans: What’s the difference?

A debt consolidation loan rolls multiple unsecured debts — such as credit cards, medical bills and other high-interest loans — into one new loan, leaving you with a single monthly payment. Some lenders that specialize in debt consolidation and credit card refinancing send loan funds directly to your other creditors.

» COMPARE: Best debt consolidation loans

Applying for a personal loan with a co-signer or co-borrower who has strong credit can improve your chances of qualifying and may get you a lower rate and more favorable terms on a loan.

A co-signer promises to repay the loan if the borrower doesn't, but that person doesn’t have access to the loan funds. A co-borrower on a joint loan shares responsibility for repayment and can access the funds. Missed payments hurt both of your credit scores on a co-signed or joint loan.

» COMPARE: Personal loans with a co-signer

A personal line of credit is revolving credit, so the money is drawn and repaid like with a credit card. Rather than a personal loan’s lump sum of cash, a credit line gives access to funds you can borrow from as needed. You pay interest only on what you borrow. Banks commonly offer personal lines of credit.

» MORE: What is a personal line of credit?

“Buy now, pay later” loans let you split a purchase into smaller installments. At checkout, you create an account with a BNPL company, pay for part of the purchase and authorize the app to charge you the rest of the balance, usually in biweekly installments.

These companies don’t require good credit to qualify you, but BNPL apps may do a soft credit pull. There may be fees or interest on your BNPL loan, depending on the lender.

» MORE: Compare BNPL apps

Loans that have high APRs and short repayment terms can be difficult to repay on time. If you can’t make the payments, you could end up borrowing again, which can lead to a cycle of debt.

These loans should be a last resort in an emergency.

1. Cash advance app

Cash advance apps let you borrow small amounts — maximums are often $200 to $500 — from your next paycheck. Most apps charge a fast-funding fee and request an optional tip, and some charge a monthly subscription fee. These fees are small but can add up.

Rather than using credit information to qualify you, most apps require access to your bank account and transaction history to determine how much you can borrow. The apps withdraw repayment from your bank account within two weeks or on your next payday.

2. Credit card advance

You can use your credit card to get a short-term cash loan from a bank or an ATM. It’s a convenient but expensive way to get cash.

Interest rates tend to be higher than those for purchases, plus you’ll pay cash advance fees, which are often a flat dollar amount (around $5 to $10) or as much as 5% of the amount borrowed.

3. Pawnshop loan

This is a secured loan. You borrow against an asset, such as jewelry or electronics, which you leave with the pawnshop. If you don’t repay the loan, the pawnshop can sell your asset.

Rates for pawnshop loans can be around 200% APR. But they're likely lower than rates on payday loans, and you avoid damaging your credit or being pursued by debt collectors if you don’t repay the loan; you just lose your property.

4. Payday loans

A payday loan is a type of unsecured loan, but it is typically repaid on the borrower’s next payday rather than in installments over a period of time. Loan amounts tend to be a few hundred dollars or less.

Payday loans are short-term, high-interest — and risky — loans. Most borrowers wind up taking out additional loans when they can’t repay the first, trapping them in a debt cycle. That means fees accumulate quickly, and loans with APRs in the triple digits are not uncommon.

5. Title loans

A title loan is a type of secured loan that uses your vehicle as collateral. If you can’t repay the loan, you could end up losing your car.

You can typically borrow between $100 and $10,000 with a title loan, but the average amount is around $1,000. Title loans are short-term, usually from one to six months. Lenders charge triple-digit interest rates, making it an expensive way to borrow money.

» MORE: Learn the signs of predatory loans