What Are the Most Common Types of Personal Loans?

A lot of different personal loans meant for different uses and needs are being offered by banks. There are home loans, advanced loans, car loans and emergency loans. However, there are three general types which are also the most commonly availed by clients.

Unlike other types which require particular documents matching specific purposes (home loans, for instance, need corresponding appraisal in value of the desired house and lot), these three types of personal loans cover a wider scope of generic purposes which mean less scrutiny upon credit investigation.

1. Secured Personal Loan

This type of loan offers security on the part of the lender. This is availed in exchange of collateral, such as vehicles like cars, boats or motorcycles, and properties like house and land. Banks require the borrower to prepare property titles which will stay with the lender until the loan amount is paid off.

Although many documents are required, it is still easier to process as no other investigations will be done. The transaction can be finalized to as fast as one day. If you are targeting smaller interest rate, then this best suits you. Aside from having a higher borrowing limitation, banks are also more amenable when processing this loan as they may give more flexible payment scheme, lower monthly due and more perks, like free services and more lenient conditions.

On the downside, since your collateral is being kept by the lending institution, the risk of losing your property is very high especially if the signed contract is not met.

2. Unsecured Personal Loan

This type of loan does not rely on collateral but on good credit rating and ability to pay. However, this often requires a co-signer or co-maker to back-up the borrower. Only smaller amount is also allowed by the bank to match the risks involved. Flexibility in payment scheme is less likely to be awarded.

For borrowers who are less confident on their payment capabilities, this is the perfect choice.

3. Line of Credit

This type of personal loan is basically what most credit card companies and banks do. They allow their customers to use credit lines up to the agreed limit then the customers just pay for them according to the signed terms. Once paid, the process can start all over again with increasing credit limit every time prior dues are settled. However, most credit card companies do not allow conversion of credit lines to cash.

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James Henry Abrina is an editor, writer, SEO specialist and currently a Corporate Communication Professional, Market Desk Strategist, Business Development Officer and Unit Head for Business Profiles Incorporated.

He currently specializes in security management and business intelligence. Together with the company, he advocates Business Continuity Planning to change how the Philippine business sector sees the definition of crisis response and management.

For more useful information, read his articles at Invisible Squares and Masscom Tutor. Or his EzineArticles page.