9 Types of Personal Loans Explained, With Definitions and Examples

Lenders market personal loans for all kinds of purposes—like debt consolidation, home improvements, or weddings—but most function the same way. At their core, personal loans are installment loans: you borrow a lump sum and repay it in fixed monthly payments over a set period.

Still, not every personal loan is identical. Some are secured by collateral, others help you build credit, and a few involve a cosigner or unique repayment structure. This guide breaks down the main types of personal loans, where to find them, which ones to avoid, and how to choose the best fit for your goals.

Table of Contents

1. 9 types of personal loans
   1. 1. Unsecured personal loans
   2. 2. Secured personal loans
   3. 3. Cosigned or joint personal loans
   4. 4. Debt consolidation loans
   5. 5. Credit builder loans
   6. 6. Buy now, pay later (BNPL) loans
   7. 7. Personal lines of credit
   8. 8. Cash advance apps
   9. 9. Peer-to-peer (P2P) loans
2. Where to get a personal loan
   1. Bank loan types vs. credit union vs. online
3. Types of personal loans to avoid
   1. ❌ Payday loans
   2. ❌ Title loans
   3. ❌ Pawnshop loans
   4. ❌ Credit card cash advances
4. How to choose the best type of personal loan for you

9 types of personal loans

1. Unsecured personal loans

Best for

• Borrowers with good to excellent credit
• Quick access to cash without pledging collateral

Definition

Most personal loans are unsecured, meaning you don’t need to offer any collateral, such as a car or savings account. Instead, lenders decide approval based on your credit score, income, and financial history. The better your credit, the lower your interest rate is likely to be.

Unsecured loans are sometimes called “signature” or “good-faith” loans because they rely on your promise to repay. Interest rates usually range from 7% to 36%, depending on creditworthiness and lender criteria.

• No risk of losing property if you can’t pay
• Fast funding and flexible use

• Higher interest rates for fair or poor credit
• Harder to qualify with limited credit history

Example

At SoFi, for example, you can apply online and receive a prequalification decision within minutes. Because SoFi loans are unsecured, you won’t need to provide any collateral—just meet the income and credit score requirements. Once approved, funds can be deposited directly into your account, often by the next business day.

2. Secured personal loans

Best for

• Borrowers with fair or limited credit
• Lower interest rates or higher approval odds

Definition

Secured personal loans require collateral, such as a savings account, certificate of deposit (CD), or even certain assets in your home. If you stop making payments, the lender can claim that collateral to recover losses. These loans are less risky for lenders, which is why they often come with lower interest rates or more flexible approval standards.

• Easier to qualify with lower credit
• May offer lower interest rates

• You risk losing your collateral if you default
• Approval and funding can take longer

Example

Best Egg offers a unique type of secured personal loan that’s backed by items in your home—such as cabinetry, fixtures, and built-in appliances—rather than the home itself. This structure allows borrowers to access financing even with moderate credit while giving lenders some security without a full property lien.

3. Cosigned or joint personal loans

Best for

• Borrowers with limited or poor credit
• Those who need help qualifying or securing a lower rate

Definition

A cosigned personal loan involves two borrowers: one who needs the loan and another with stronger credit who agrees to share responsibility for repayment. The cosigner’s good credit helps the primary borrower qualify or secure better terms. However, if the main borrower misses payments, both credit scores can suffer.

A joint loan goes a step further—both applicants share equal ownership of the loan and the funds. This can help couples or family members borrow together for shared expenses like home improvements or major purchases.

• Easier to qualify with a cosigner’s strong credit
• Potentially lower interest rates

• Both borrowers are equally responsible for repayment
• Missed payments can damage both credit scores

Example

Upgrade and LendingClub both allow cosigned or joint personal loans, making them solid options for borrowers building credit or looking to qualify for higher loan amounts. The cosigner or co-borrower applies alongside you, and both names appear on the loan agreement and credit report.

4. Debt consolidation loans

Best for

• Paying off high-interest credit card or personal debt
• Simplifying multiple payments into one

Definition

A debt consolidation loan is an unsecured personal loan designed to pay off existing debts—such as credit cards, medical bills, or other personal loans. Instead of receiving the funds directly, the lender often sends payments straight to your creditors, helping you eliminate balances and roll them into a single monthly payment.

This structure can simplify repayment and potentially lower your total interest costs, but it only works if you avoid running up new debt afterward.

• Streamlines multiple debts into one predictable payment
• May reduce overall interest costs

• Doesn’t address spending habits or underlying debt causes
• May extend repayment and increase total interest if the term is long

Example

Happy Money specializes in debt consolidation through its Payoff Loan, which is designed for credit card debt specifically. The lender can send funds directly to your credit card issuers and deposit any remaining balance into your account—making it one of the more seamless ways to consolidate debt responsibly.

5. Credit builder loans

Best for

• Borrowers with little or no credit history
• Rebuilding credit after financial setbacks

Definition

A credit builder loan works differently from a traditional personal loan. Instead of receiving the money upfront, the lender holds the loan amount in a secured account while you make fixed monthly payments. Once you’ve paid off the loan, you receive the funds—and a positive payment history on your credit report.

These loans are small (often $300–$1,000) and are offered by community banks, credit unions, and financial apps focused on credit repair.

• Helps establish or rebuild credit history
• Payments are typically low and manageable

• You don’t get the money until you’ve made all payments
• Doesn’t help if you already have strong credit

Example

Self Financial and CreditStrong are two leading credit builder lenders. They report your on-time payments to the major credit bureaus each month, helping you build a track record of responsible borrowing while saving money you’ll receive at the end of the term.

6. Buy now, pay later (BNPL) loans

Best for

• Large one-time purchases
• Borrowers with limited or no credit history

Definition

Buy now, pay later (BNPL) loans—also known as point-of-sale (POS) financing—are short-term, unsecured loans often offered directly at checkout. These plans typically let you split a purchase into four equal payments made every two weeks and charge no interest as long as you pay on time.

If you miss a payment, though, late fees or high interest rates (sometimes up to 36% APR) can apply, and missed payments may be reported to credit bureaus. While BNPL can be a convenient way to budget large purchases, it’s still debt—and using it frequently can make it harder to keep track of what you owe.

• Easy approval and fast checkout financing
• Often interest-free when paid on time

• Missed payments can lead to high interest or fees
• Frequent use can encourage overspending

Example

Affirm, Afterpay, Klarna, and Sezzle are among BNPL providers. Each partners with major retailers to offer short-term installment plans, though longer-term financing through Affirm can resemble a traditional personal loan with interest charges.

7. Personal lines of credit

Best for

• Ongoing or unpredictable expenses, like home repairs or education costs
• Flexible access to extra cash in emergencies

Definition

A personal line of credit works more like a credit card than a traditional personal loan. You can borrow up to a set credit limit, repay what you’ve used (plus interest), and borrow again as needed—making it a form of revolving credit.

Unlike a lump-sum personal loan, which gives you all the funds upfront and fixed monthly payments, a line of credit lets you draw funds during a draw period, which can last months or even years. Once the draw period ends, you’ll enter the repayment phase, when you can no longer withdraw additional funds.

Personal lines of credit often come with variable interest rates that move with the market, which means your costs can change over time. Rates also tend to be higher than those for standard fixed-rate personal loans.

• Flexible borrowing and repayment structure
• Pay interest only on the amount you use

• Variable rates can increase over time
• Easy to overborrow if you’re not careful

Example

U.S. Bank offers personal lines of credit with variable rates and no collateral required. Borrowers can access funds online or via the mobile app during the draw period, making it useful for managing long-term or fluctuating expenses.

8. Cash advance apps

Best for

• People who need quick access to small amounts of cash
• Borrowers confident they can repay the advance from their next paycheck

Definition

While “cash advance” used to refer mainly to expensive credit card withdrawals, cash advance apps have made this option more affordable and accessible. These apps let you borrow small amounts—typically up to a few hundred dollars—and automatically deduct repayment from your next paycheck.

Many services offer advances with no mandatory fees if you’re willing to wait a day or two for delivery. If you need the money instantly, you’ll usually pay a small expedited transfer fee instead. Because repayment comes directly from your next deposit, it’s best to use these loans sparingly and only when you’re sure the deduction won’t disrupt your budget.

• Fast access to cash before payday
• Often no interest or required fees

• Instant transfers may cost extra
• Can create a cycle of dependency if used frequently

Example

Apps like EarnIn, Dave, and MoneyLion are among the most popular cash advance options. They typically offer $20 to $500 advances, with optional tips or express fees, and repayment automatically scheduled around your payday.

9. Peer-to-peer (P2P) loans

Best for

• Borrowers with fair or poor credit
• Those who need fast funding outside traditional banks

Definition

Peer-to-peer (P2P) loans are funded by individual investors rather than banks or credit unions. You apply through an online platform that matches borrowers with people willing to lend money, often in small portions that combine to cover your total loan amount.

P2P lenders tend to have more flexible approval criteria, which can make them appealing if you have limited or imperfect credit. However, the trade-off may be higher interest rates or platform fees. These loans are usually unsecured, though some platforms may offer secured options.

• Easier approval than with traditional banks
• Quick online applications and funding

• Interest rates can be higher for riskier borrowers
• Platform or origination fees may apply

Example

LendingClub and Prosper are two of the best-known P2P lending platforms. Borrowers apply online, and approved loans are funded by individual investors. You’ll then make one monthly payment to the platform, which distributes the funds back to each investor who contributed to your loan.

Where to get a personal loan

You can find personal loans through banks, credit unions, or online lenders. Each has its advantages depending on your credit profile, how quickly you need funds, and whether you prefer an in-person relationship or a fully digital experience.

Bank loan types vs. credit union vs. online

Lender type	Best for	Typical loan types available
Banks	Established customers with good to excellent credit	Unsecured loans, secured loans, debt consolidation loans
Credit unions	Members with fair or limited credit who want lower rates	Unsecured loans, secured loans, credit-builder loans, debt consolidation loans
Online lenders	Borrowers who want fast funding or have below-average credit	Unsecured loans, secured loans, cosigned loans, P2P, BNPL, debt consolidation loans

Types of personal loans to avoid

While most personal loans can be useful tools, some borrowing options come with extremely high costs or risky repayment terms. Here are the ones to steer clear of—or approach with caution.

❌ Payday loans

Best to avoid because: Extremely high interest and short repayment windows can trap borrowers in debt.

Payday loans are small, short-term advances—typically due on your next payday—with APR rates that can exceed 400%. Because repayment is required in full within weeks, many borrowers end up taking out another loan to cover the first, creating a cycle of debt. These loans are often marketed to borrowers with poor credit, but they’re rarely a sustainable solution.

❌ Title loans

Best to avoid because: You risk losing your vehicle.

Title loans let you borrow against the value of your car, handing over your vehicle title as collateral. They often carry triple-digit APRs and short repayment periods. If you can’t repay, the lender can repossess your car—making this one of the riskiest ways to borrow.

❌ Pawnshop loans

Best to avoid because: High fees and the risk of losing your item.

Pawnshop loans require you to hand over a valuable item—like jewelry or electronics—as collateral. The lender gives you a small percentage of the item’s value in cash, and you must repay the loan (plus steep fees) to get it back. Defaulting means losing the item entirely.

❌ Credit card cash advances

Best to avoid because: They’re expensive and start charging interest immediately.

A credit card cash advance lets you withdraw money from your credit card balance—but it often comes with an immediate interest rate around 25%–30%, plus additional fees. There’s no grace period, so interest starts accruing right away.

While cash advance apps can make sense for small, short-term needs, credit card cash advances are best avoided due to high costs and the potential to deepen existing debt.

How to choose the best type of personal loan for you

Finding the right personal loan comes down to balancing cost, eligibility, and convenience. Here’s what to look for before you apply:

1. Minimal fees

The fewer personal loan fees you pay, the more of your loan goes toward your goals. Compare lenders for origination, late, and prepayment fees—and prioritize those with low or no added costs. Many top online lenders skip origination fees entirely, while payday and P2P loans often charge more for faster access.

2. Low interest rates

A lower rate means lower total borrowing costs. Most unsecured personal loans cap rates at 36% APR; anything higher is a red flag. Compare offers from multiple lenders, and use prequalification tools to find the best rate for your credit profile.

3. Clear eligibility requirements

Choose lenders that are transparent about credit score, income, and employment criteria. If you have strong credit, look for traditional lenders offering low, fixed rates. If your credit is less than perfect, consider lenders that accept fair credit or allow secured loans to improve approval odds.

4. Prequalification and a simple application

Look for lenders offering soft-credit prequalification so you can check rates without lowering your score. Apply only after comparing your prequalified offers to minimize unnecessary hard inquiries and boost your approval chances.

5. Repayment terms that fit your budget

Longer loan terms reduce your monthly payments but cost more in total interest. Shorter terms save money overall but raise monthly costs. Aim for a balance that keeps payments affordable without overextending your budget.

6. A smooth customer experience

Whether online or in person, a good lender should make borrowing easy. Prioritize those with clear communication, intuitive apps or portals, and responsive support by chat, email, or phone.