Types of Personal Loans

Personal loans come in many forms, each designed to meet different financial needs, whether it’s covering an emergency expense or consolidating debt. From installment loans to credit builder loans, this guide breaks down the key features of 10 common types of personal loans. Learn what sets each option apart so you can make an informed decision and find the best loan for your needs.

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Why do lenders offer so many different types of personal loans?
Secured vs. unsecured personal loans
Specific types of personal loans
What are the best types of personal loans?

Why do lenders offer so many different types of personal loans?

While some lenders don’t specify personal loan uses, others tailor their offerings to different needs, such as “home improvement loans,” “wedding loans,” or even “adoption loans.”

These products may have unique eligibility requirements or limitations. For instance, you might get a lower interest rate on a personal loan for a home remodel than one for a wedding.

Because the best personal loan for you will depend on many factors—including your credit score, income, timeline for repayment, and use of the loan funds—knowing the complete which personal loan types different lenders offer allows you to make the most informed decision.

Low-Interest Personal Loans

Secured vs. unsecured personal loans

Personal loans can be secured or unsecured. Secured loans require collateral to “secure” your loan. If you don’t make your payments, you lose your collateral. For personal loans, collateral can be a savings account or certificate of deposit (CD).

Most personal loans are unsecured loans, meaning lenders consider your credit score, credit history, and income for approval rather than the value of the collateral you can offer. The higher your credit score, the more your approval odds for an unsecured personal loan increase.

If you have fair credit—a FICO score of 580 to 669—you may still qualify, but your interest rate won’t be the lowest advertised, or you might not get the full loan amount requested. Interest rates for unsecured personal loans can range from 7% to 36%, with an average of 11.92% for a 24-month personal loan as of May 2024.

If you don’t have great credit, a secured loan can be a way to obtain a personal loan because your loan presents less risk when it’s tied to collateral. You may also see lower interest rates for secured personal loans compared to unsecured ones because the risk is higher for you, the borrower.

Signature Personal Loans

Specific types of personal loans

Within the classification of secured and unsecured loans are various types of personal loans to consider based on your qualifications and needs. Some of these types have secured and unsecured options, while others fall solely in the unsecured category.

Type of personal loan	Unsecured	Secured
Installment	✔️
Online	✔️ (typical)	✔️
Bank	✔️	✔️
Credit union	✔️	✔️
Personal line of credit	✔️
Cash advance	✔️ (typical)
Peer-to-peer	✔️ (typical)	✔️
Payday	✔️
Buy now, pay later	✔️
Credit builder	✔️	✔️ (typical)

Installment loans

When you take out an installment loan, you make fixed monthly payments over the life of the loan for a set time. Once you’ve completed the payments, the loan ends. How much you borrow and how long you make payments depends on the loan.

Auto loans, mortgages, and student loans are common installment loans. Personal loans can also be installment loans, and they’re often unsecured, meaning you don’t lose any property or money if you don’t make payments.

But installment loans can still present risks. If you fall far enough behind on payments, your loans are delinquent and could end up in default, which causes your credit score to tank. It could take years to rebound that score and remove the negative marks from your credit report.

Interest rates on personal installment loans vary, ranging from 7% to 36%, depending on your credit score, income, loan amount, and the purpose of the loan.

Pros

Fixed payments make budgeting easier
Often unsecured, so collateral is not at risk

Cons

Wide variation in interest rates
Some offerings may come with origination fees and prepayment penalties

Best for

Borrowers with good or excellent credit (due to the variation in interest rates)

Online loans

Online loans come from lenders that don’t require you to visit a branch. Instead, you can handle everything online or through a mobile app—from prequalification to completing the application, approval, and setting up banking information to make virtual payments.

You can get online loans from traditional and nontraditional lenders, and they are typically unsecured. Secured options might also be available. You may see different requirements for various loans from the same lender.

All these options make it crucial to do your due diligence when researching online personal loans. Interest rates vary, and predatory lenders exist.

Whenever possible, leverage an online lender’s prequalification options before submitting a complete application, which triggers a hard credit check and shows up on your credit report.

Pros

Convenience
Quick approval—some lenders can return approval within the day
Same-day funding is possible
Flexible uses
Bad-credit options available

Cons

Rates vary and may be higher than at your personal bank
Thorough due diligence required

Best for

When you need funds fast
If you don’t have great credit

Bank loans

Major traditional and community banking institutions offer personal bank loans in person or online.

These types of loans and the associated eligibility requirements can vary based on the bank, and some banks may not have a prequalification option. The benefits of choosing a personal loan through your current bank include familiarity, trust, and possible relationship perks.

Interest rates for personal bank loans vary based on your credit score, income, and other factors. Consider visiting a few different banks to shop around for the best loan.

Pros

Convenience of doing all of your banking in one place
You may be eligible for rate discounts if you are a current customer
Flexible uses of the funds
Easier due diligence than researching online lenders you’re unfamiliar with

Cons

Fewer options for poor credit
Approval and funding may take longer
Interest rates may be higher than what you can find online, but not always

Best for

If you’re an established customer at a bank
You have good credit

Credit union personal loans

Like bank loans, personal loans from credit unions come with interest rates based on your credit score and lending terms.

Credit unions may have different lending terms compared to some banks. For instance, you might need to be a member of a credit union for a set time before borrowing a personal loan.

You also may find that credit unions have lower interest rates and more lenient eligibility requirements than banks because credit unions are not for profit.

Pros

Lower interest rates than traditional banks
More lenient eligibility requirements
Familiarity of banking with a local institution

Cons

May require you to be a member for a certain amount of time before being eligible for a personal loan

Best for

Current members of credit unions
Those with fair or bad credit, who may not be eligible for other personal loan options

Personal lines of credit

A personal line of credit is like a credit card in that you can withdraw money up to your limit and make payments on it, including interest, until your balance is paid in full.

Unlike a traditional loan, in which you receive the loan amount upfront and pay it off with a fixed interest rate during a set repayment period, a personal line of credit is a form of revolving credit, meaning you can continue to withdraw even as you’re making payments.

You can make withdrawals during the draw period, which can last from months to years. When the draw period ends, you enter the repayment period and can no longer take funds from the credit line.

Personal lines of credit often carry variable interest rates, meaning their rates can fluctuate with the market index. These rates are typically higher than rates on standard personal loans.

Pros

More flexibility in spending than a traditional personal loan
Lower interest rates than a credit card
Unsecured, so not tied to collateral

Cons

Higher interest rates than personal loans
Variable interest rates can make it more difficult to budget for payment
Can be harder to qualify for than a personal loan

Best for

Expenses over a longer period when you’re not sure how much you’ll need, such as home repairs or education expenses
Access to extra cash in emergencies

Cash advances

A cash advance is most often associated with credit cards, but cash advance apps, where you repay the loan once you get your paycheck, are gaining popularity. Credit card cash advances are expensive, so it’s best to avoid those if possible.

Cash advance apps can loan you up to a few hundred dollars, which you’ll repay out of your next paycheck. Many apps offer advances for few to no fees if you can wait a couple of days to get the money. You can opt for instant transfer, but you’ll pay a fee in most cases.

We don’t recommend regular use of cash advance apps because you’ll get some or all of your paycheck early and may pay a fee to get it—and if you do it on a regular basis, it can create a pattern where you’re always being paid less.

Pros

Fast access to quick cash
Easy to get; no credit check required

Cons

Possible cash advance fee
If you do this on a regular basis and pay a fee, your paycheck will always be smaller

Best for

People who need cash, fast and now
Borrowers who are confident the cash advance will not upset their cash flow

Peer-to-peer (P2P) loans

Sometimes, loans don’t come from financial institutions. P2P loans are products that come from people, for people. Getting one often involves signing up through an online lending platform and sharing your needs. Then, individual investors fund your loan.

Many P2P lenders have fewer eligibility requirements, making them an appealing option for borrowers with fair or bad credit. But remember that you might pay higher interest rates and more fees with this route. P2P loans are typically unsecured but can be secured.

Most P2P lenders give you the same types of offers as other lenders. For instance, you can set up autopay and make one monthly payment to the P2P lender that gets disbursed back to all the investors who contributed to your loan (if it’s multiple people).

Pros

An option for borrowers with fair or bad credit
Convenience of online application, approval, and payment
Quick approval and funding
Ability to choose between a variety of offers

Cons

Higher fees
Higher interest rates

Best for

Borrowers with fair or bad credit
If you need fast funds

Payday loans

Payday loans are short-term, high-interest loans that require payment in full within a few weeks or by your next payday. These are small-dollar, unsecured loans that often don’t require a credit check.

Payday loans work by lending you a set amount of money you must repay quickly, unlike traditional personal loans, which give you months or years to repay your loan. If you can’t repay it, you could take out another loan to pay it off, entering a payday lending cycle.

These loans prey on borrowers who don’t have strong credit and can’t otherwise borrow a personal loan, and they aren’t available in every state. You can expect your annual percentage rate (APR) to be upward of 400% in the states that allow them.

Pros

No credit check required
Instant funding

Cons

Sky-high interest rates and fees
Short repayment period

Best for

Borrowers with bad credit who don’t qualify for other personal loan options and can meet the repayment time frame

Cash advance vs. payday loan

Buy now, pay later (BNPL) loans

Buy-now, pay-later (BNPL) loans , or point-of-sale (POS) loans, are unsecured, short-term financing options that are often interest free if you make the required payments. You might see this type of loan when checking out online at your favorite retailer through apps such as Affirm, Afterpay, and Klarna.

If you don’t want to use a debit or credit card for a purchase, you can use BNPL to make four equal payments about every other week to pay your balance. After that, if you don’t make your payments, APRs up to 36% may kick in based on your credit score and eligibility.

Pros

Often no interest if you pay on time in four installments
No hard credit check, so BNPL usage won’t show up on your credit report

Cons

Interest and fees kick in if you don’t make your payments or after four payments
You should ensure the interest-free payments fit into your budget

Best for

Large one-time purchases
Low credit scores or those new to credit

See our resource on no-interest personal loans.

Credit builder loans

You might have trouble qualifying for a personal loan if you don’t have good credit or much credit to your name, but credit builder loans—personal loans for those who need to build or rebuild credit—may help.

Credit builder loans don’t actually lend money. When you take out a loan, repayment begins right away. The payments are held in a CD to earn interest and reported to the credit bureaus, which increases your credit score. You receive your funds minus interest and fees when payments are complete.

Interest rates for credit builder loans can vary based on your credit score, how much you’re borrowing, your income, and the lender. Rates range anywhere from 5% to 30%, sometimes more. You may also face more and higher fees than other types of personal loans.

Most credit builder loans are secured because your loan funds are the collateral. Some banks offer unsecured credit builder loans, but they often include higher interest rates.

Pros

Allows you to qualify for a personal loan when you may not have otherwise
Helps build credit
After a few months of on-time payments, you should see your credit score improve and potentially a release of your collateral

Cons

Missed or late payments will cause your credit score to drop
Loan funds are your collateral
Must repay your loan before getting your funds
Higher interest rates and fees than other personal loan products

Best for

Bad credit
Credit building
When you don’t need immediate funds

What are the best types of personal loans?

Consider these elements when assessing lenders and selecting the best personal loan for you:

The fewest fees

The less you need to pay on top of your principal loan amount, the more money you keep for yourself. Look out for personal loan fees, such as origination fees, late fees, returned payment fees, and prepayment penalties when evaluating lenders and their products.

Several online and traditional lenders may offer personal loans without origination fees. Meanwhile, if you go the route of a payday or P2P loan, you’ll likely incur higher fees in exchange for faster funding and approval.

The lowest interest

Interest is what you pay for the privilege of borrowing a loan. The lower your interest rate, the less you’ll pay in addition to your principal balance when you make payments.

For unsecured personal loans, interest rates don’t often exceed 36%. If you see interest rates higher than that, you should explore other, less expensive options. Comparing interest rate entry points can give you an idea of where to get the lowest possible interest rate with excellent credit.

Clear eligibility requirements

When evaluating personal loans, look for lenders with clear, succinct eligibility requirements.

Consider whether the lender offers loans for bad, fair, good, or excellent credit—some lenders specialize in products targeted toward specific types of borrowers. Income and employment requirements will also vary by lender.

Understanding eligibility requirements can help you determine the best personal loan you can get. If you have excellent credit and stable income from a job you’ve held for years, a more traditional personal loan could be the way to secure a low, fixed interest rate.

Meanwhile, those with less-than-stellar credit may seek lenders with more lenient eligibility requirements, even if it means higher interest rates and fees, or these borrowers may explore secured personal loan options.

Prequalification and an easy application process

The application process should also factor in when choosing a personal loan and lender. Prequalification allows you to see whether you’re eligible for a personal loan through a soft check rather than completing a hard credit check.

The more hard credit checks you have, the lower your credit score drops. A drop in your credit score can hurt your chances of borrowing in the future, so only complete an application if you know you’ll get approved.

When comparing lenders, check to see which ones offer prequalification so you can see whether you’re likely to get a loan from each company. Based on your approval odds, you can compare your options and choose the best personal loan for you.

Adequate repayment terms

Many lenders have a variety of repayment terms, ranging from a couple of months to a few years.

The longer your repayment terms, the lower your monthly payments. The shorter your term, the less interest you’ll pay over the life of your loan. Look for terms that best fit your budget and needs.

Seamless customer experience

While in-person banking can be a benefit, find lenders that offer an easy online and app experience so you can apply, borrow, and make payments without a hitch. See whether the lender has online chat support, email, a phone number, and a branch to visit, if necessary.

Self-Employed Personal Loans