5 Types of Personal Loans Based on Interest Rates

by Anujit Bhattachaarya Finance

Personal Loans come in handy when you want to satisfy immediate financial needs. Their instant disbursal and easy application process make them an appealing option. Besides, you do not need to submit any collateral to avail of them.

Today, you get a Personal Loan for various purposes. Some examples include higher education, medical expenses, weddings, holidays, etc. However, you also get such a Loan based on the Personal Loan interest rates. It is essential to know about them to select one that suits your needs. Below are five of them explained briefly:

1. Secured Loans

It is wise to opt for Secured Loans if you have any financial assets like jewellery and property. Such Personal Loans offer lower interest rates because of collateral. The lender can seize the collateral submitted if you fail in repayment. Hence, it is best to ensure that you pay the Equated Monthly Instalments on time.

2. Unsecured Loans

This is the most popular form of Personal Loan. This type levies the highest Personal Loan rate of interest. Lenders have to face a higher risk due to no collateral submission. Hence, they find a means to compensate for the risk-bearing. Also, factors like your credit score, income, and debt-to-income ratio determine the rate charged. This is because these factors indicate your creditworthiness the best.

3. Fixed and Variable Interest Loans

In most cases, lenders also offer fixed-interest Loans. These come with fixed Personal Loan interest rates that stay consistent throughout the Loan tenure. You also get an idea of the rate charged beforehand. In Variable Interest Loans, the interest rate fluctuates based on market benchmark changes. As a result, you pay varying interest during the Loan term.

4. A personal line of credit

This Personal Loan does not have any fixed instalments or duration. It is a revolving credit you can avail of instead of a lump sum. It works like a Credit Card. Lenders offer this facility based on collateral or by connecting to your checking account. Such Loans are suitable for emergencies and immediate financial needs. They come with various benefits and interest rates.

Hence, you can select one that satisfies your financial requirements. However, it is best to compare lenders and check for their offerings before doing so.

5. Debt Consolidation Loan

This Loan is a combination of all the Loans. It has a lower Annual Percentage Rate. Thus, you pay lower interest rates instead of multiple varying rates. It is best to opt for this type if you have many debts and want to simplify the repayment. Doing so enhances and refines your repayment discipline effectively.