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f you’re considering applying for a personal loan, there are a few loan options to consider. It’s best to research and understand exactly which types of loan options there are so you know what’s right for you and your financial needs.

Secured Personal Loans

A secured personal loan requires that borrowers offer collateral, or something of value, to the lender–such as the rights to their home or car, to protect (or secure) the lender in case the loan can’t be paid off. If you apply for a secured loan, you will need to be able to provide the bank or lender one of these types of assets. The lender then places a lien on that asset until you repay the loan in full. If you can’t pay off the loan at all (default), the bank/lender will seize your collateral (such as your car or home) and may sell it to get the money that was never paid back on the loan.

Because of the collateral that borrowers must put up for a secured loan, these types of loans are easier to qualify for and usually have lower interest rates. Why? Because, with your collateral, the bank is better protected against loans not being paid. While you may potentially risk losing a valuable asset with a secured loan, there are some benefits, such as a larger borrowing limit, the lower interest rate, and generally longer periods to repay the loan. On the other hand, along with the risk of losing your collateral, most secured loans must be used for a specific purpose. Common types of secured loans include:

Secured loans are often for large amounts, which is why banks/lenders must cover themselves in the event the borrower can’t pay the loan back.

Unsecured Personal Loans

As you can probably guess, unsecured personal loans are loans that do not require collateral. As long as you meet the bank’s borrowing requirements, all you need to do to take out an unsecured personal loan is sign for it–which is why they’re sometimes referred to as “signature loans.” Because lenders are not protected by collateral like they are with secured loans, they often charge higher interest rates or require high credit scores for unsecured loans because the loan is a greater risk for them.

If an unsecured personal loan is not paid off, the bank isn’t able to seize a car or a home or a parcel of land, which is why they often demand that borrowers have a very good credit history. In most cases, when a borrower defaults on an unsecured personal loan, all the bank has the ability to do is send the missed payments to a collection agency and negatively impact the borrower’s credit score. Higher interest rates on unsecured personal loans help cover the bank financially in case of missed loan payments.

Unsecured loans are very common, especially for those who have good-to-excellent credit history and a steady source of income. A student loan is considered an unsecured loan, as is credit such as credit cards. Unsecured personal loans, unlike secured personal loans, can generally be used for anything you want to use the money for.

The only downsides to an unsecured loan are the fact that you do need good credit and steady income, and that interest rates are higher than secured loans.

Debt Consolidation

Many people owe money on multiple loans, such as credit cards, and have a hard time paying them all off. That’s where debt consolidation can help.

Debt consolidation rolls multiple debts into one loan with one monthly payment, and sometimes even a lower interest rate. This helps a lot of people better keep track of their debt (after all, one payment is better than four or five!) and potentially save money. With a debt consolidation loan, you’ll apply for a loan in the amount you owe on your current debts. Once you’re approved, you’ll use that loan money to pay off your existing debts. That will leave you with only the debt consolidation loan amount to repay over the agreed-upon terms of the loan.

When looking for the right debt consolidation loan, consider some of these factors:

Debt consolidation loans are also helpful because they are usually fixed-rate, which means the interest rate stays the same each month. This is especially helpful if you have debt on multiple credit cards with different interest rates. Consolidating that credit card debt into one monthly payment with a fixed interest rate not only saves you a headache each month, it may also save you money spent on interest.

Overall, debt consolidation is a great option if you want to save on interest (personal loan interest rates are usually several points lower than credit card interest rates), pay down your debt faster, get your finances better organized with one monthly payment vs. several, and know when you’ll be free of debt! It’s worth the time to do research and ask the bank/lender about any fees associated with debt consolidation.

Sun Loan Is Ready to Help You with a Personal Loan

At Sun Loan, our personal installment loans have been helping customers just like you borrow the money they need and repay it through a consistent set of affordable monthly payments that can even help build your credit. We look at our customers as more than just a credit score, and we take many factors into consideration when approving personal installment loans. We’re here to answer all your questions and walk you through the personal loan application process. Get in touch with Sun Loan today!