There are several valid reasons for pursuing a personal loan. For instance, you might look into personal loans for a home remodel. You may also want one if you need to purchase a new appliance or have emergency expenses and don’t have much in the way of savings.
However, there are also other types of loans besides personal loans. We’ll talk about what those other kinds of loans are and why getting a personal loan is often a better option.
Other Kinds of Loans
Personal loans are funds borrowed from a lending entity like a bank or credit union. You pay back that loan in fixed monthly payments called installments. You generally have a set amount of time to pay back that loan at a fixed interest rate.
There are other kinds of loans, though, like a loan against a mutual fund. In that instance, you have money in a mutual fund, and you agree with the financier to borrow purchased units from that fund. The loan amount will be less than the mutual fund’s market value.
There are also payday loans, where you get a short-term loan, usually with a high interest rate to cover expenses between paychecks. They’re called payday loans because the borrower gives a postdated check to the lender for the amount of their payday salary.
You can get several other kinds of loans as well, including loans against insurance, loans against property, and even loans against gold.
Why Choose Personal Loans?
1. Interest Rates
One of the key reasons to get a personal loan over other kinds of loans is that you often get a more favorable interest rate with a personal loan. If you compare personal loans vs. some of the other types we mentioned, you will generally see lower rates.
For instance, if you look at a personal loan from a bank or credit union vs. a payday loan, you’ll almost always get a better rate with the former. Lower interest means you’ll end up paying the lending entity less money, which is always what you want.
2. Credible Lending Entities
If you get a personal loan, you’ll usually get one from a bank or credit union. You can regard those as credible lending entities. That’s seldom the case if you get a loan from a different entity, like a payday lender.
Banks and credit unions are not fly-by-night lending entities. They have a solid foundation, and they’re subject to strict regulation and oversight. If you get a personal loan from a bank or credit union, they are less likely to engage in predatory practices.
3. No Collateral
If you pursue a personal loan from a bank or credit union, you may also be able to get one without putting up any collateral, like your house or car. As long as you have at least decent credit, you can probably get a personal loan offer with no collateral.
You don’t want to put up your house or vehicle as collateral unless you feel like you have no other choice. If you have good credit and hunt for a personal loan, you can probably locate a lending entity that won’t demand that particular stipulation.
A Personal Loan May Be Your Best Option
With personal loans, you typically won’t have to put up collateral as long as you have good credit. You also can likely find one with a better interest rate than other loan types offer you. Plus, doing business with an entity like a bank or credit union with a credible reputation is in your best interest.
These are all critical factors to consider when borrowing money, and they may lead to you getting a personal loan vs. another option.
