8 Types of Personal Loans and How to Use Them

Whether it’s handling unexpected emergencies, earning an education, or becoming a homeowner, loans can make it possible to make ends meet, make major purchases, or invest in the future. Each type of loan has benefits and drawbacks for the borrower, but the right one can be a helpful financial tool when used wisely. 

Types of loans 

Matching the right loan to your needs can give you a powerful tool for managing your finances. 

A personal loan can range from a few hundred dollars to tens of thousands, depending on the type and terms. The various types of personal loans that lenders offer include: 

1. Secured personal loans
2. Unsecured personal loans
3. Personal Line of Credit
4. Debt consolidation loans
5. Title loans
6. Buy Now, Pay Later loans
7. Credit-builder loans
8. Co-signed loans 

Secured personal loans 

Secured loans are backed by something you already own — like a car or a savings account. This collateral can help you qualify and may lead to lower interest rates. But it’s important to know your asset could be at risk if you can’t repay the loan. 

Pros: 

• May offer lower interest rates
• Can be easier to qualify for with less-than-perfect credit
• Higher borrowing limits may be available 

Cons: 

• Risk of losing your asset if you can’t repay
• May require extra steps to prove ownership of collateral 

Helpful for: Larger expenses or when you want to unlock better rates by using an asset you already own. 

Unsecured personal loans 

Unsecured loans don’t require collateral, which means you don’t need to put anything at risk to borrow. Approval usually depends on your credit history and income. These loans may come with higher interest rates but offer more flexibility. Payday Loans and Installment Loans are two popular types of unsecured personal loans. 

Pros: 

• No collateral needed
• Straightforward application process
• Fixed monthly payments help with budgeting 

Cons: 

• May come with higher interest rates
• Harder to qualify with lower credit
• Borrowing limits may be lower 

Helpful for: Everyday expenses, consolidating debt, or covering one-time costs without using collateral. 

➢RELATED: Secured Loans for Bad Credit

Personal Line of Credit 

A Line of Credit gives you access to funds up to a set limit — and you only use what you need, when you need it. It’s a flexible option for handling ongoing or unpredictable expenses. A Line of Credit eliminates the need to apply for a new loan when future expenses arise because it remains open even when you pay off the balance. 

Pros: 

• Ongoing access to funds
• Only pay interest on what you use
• Flexible repayment options 

Cons: 

• Payments may vary
• Interest rates can fluctuate
• Could be harder to manage without a clear budget 

Helpful for: Covering gaps between paychecks or handling recurring or unexpected costs over time. 

➢RELATED: Line of Credit vs. Loan

Debt consolidation loans 

A debt consolidation loan lets you combine multiple debts — like credit card balances or other loans — into one monthly payment. It’s a way to simplify repayment and potentially lower your overall interest costs. 

Pros: 

• One monthly payment instead of many
• May offer a lower interest rate than your current debts
• Could help reduce stress and make repayment feel more manageable 

Cons: 

• May require good credit for the best rates
• A longer loan term could increase the total interest paid 

Helpful for: People with multiple high-interest debts who want to simplify their payments and possibly reduce how much they pay in interest over time. 

Title loans 

If you own your car and need short-term funds, a title loan could be an option. You use your vehicle title as collateral — and you can keep driving your car while making payments. 

Pros: 

• Simple application and appraisal process
• Credit score may not be required
• Keep driving your car while repaying the loan 

Cons: 

• Your car could be at risk if you can’t repay the loan
• You must own your vehicle outright (free and clear title) 

Helpful for: People who need short-term funds and own their vehicle but want to keep using it while making payments. 

Check your car's value

Buy now, pay later (BNPL) loans 

Buy now, pay later loans let you split a purchase into smaller payments — often interest-free if paid on time. They're usually available at checkout, either online or in-store, and can offer a budget-friendly way to manage short-term expenses. 

Pros: 

• May offer interest-free payments if paid on time
• Quick approval and easy checkout process
• Helps spread out the cost of a purchase 

Cons: 

• Missed payments can lead to fees or added interest
• It’s easy to overspend if you’re not tracking your budget 

Helpful for: Smaller purchases when you’re confident you can stick to the repayment schedule and avoid fees. 

Credit-builder loans 

Credit-builder loans are small, manageable loans designed to help you establish or improve your credit. The money you borrow is usually held in a secure account and released to you once the loan is fully repaid — making it a useful tool for building credit responsibly. 

Pros: 

• Helps establish or rebuild your credit history
• On-time payments can improve your credit score over time 

Cons: 

• Loan amounts are usually small
• You don’t get the money right away — it’s held until the loan is paid off 

Helpful for: People who want to build or rebuild credit and don’t need immediate access to cash. 

Co-signed loans 

If you’re having trouble qualifying for a loan on your own, applying with a co-signer — like a parent, friend, or spouse — could help. A co-signed loan means someone agrees to share responsibility for the loan if you can’t repay, so it’s important for both people to understand the risks before moving forward. 

Pros: 

• Can help you qualify if you have limited or poor credit
• May offer better terms, like lower interest rates 

Cons: 

• Your co-signer becomes fully responsible if you can’t repay
• Could affect your relationship if payment issues come up 

Helpful for: Borrowers who need help qualifying for a loan and have someone willing to share responsibility. 

Things to consider with different types of loans 

Doing your ‘loan homework’ will help you make an informed borrowing decision and avoid paying more than you need to in interest and fees. 

Before you begin the application process, it’s wise to consider the following factors as you evaluate your personal loan options. 

Your credit history 

Some loans require a higher credit score than others. A stronger credit history may help you qualify for lower interest rates or higher loan amounts. 

Your monthly budget 

A loan should support your budget and not work against your income, bills, and other expenses. Think about how much you can comfortably afford to repay each month. 

How much you need to borrow 

The loan amount should match your needs — not more, not less. Borrowing more than necessary could make repayment harder. 

How you plan to use the loan 

Some loans work better for specific needs. Being clear on how you’ll use the loan will help you pick the one that best fits your needs: 

• Covering an unexpected expense before payday? A Payday Loan might make sense.
• Planning ahead for a larger purchase? An Installment Loan may be a better fit.
• Need flexible, ongoing access? A Personal Line of Credit can help. 

How quickly you need the funds 

Some loans offer same-day funding, while others may take a few days or weeks before funds are available. But if your situation isn’t urgent, a loan with a longer processing and funding period may offer better terms than a same-day emergency loan. 

Repayment terms 

Think about how long you’ll need to pay the loan back. Short-term loans like a Payday Loan may work for temporary gaps in cash. For longer repayment periods, Installment Loans with set monthly payments may be a good option. 

Interest rates and fees 

The interest rate on a loan is what most borrowers focus on but don't forget to compare the total cost of borrowing, not just the interest rate. Look for fees, including late or origination fees. Once you take these into account, you may find that the lowest interest rate loan isn’t the best deal. 

Fixed-rate vs. variable-rate loans 

Besides a loan’s rate percentage, the type of rate is a factor you should consider as you evaluate options. 

• Fixed-rate loans keep the same interest rate throughout the loan term, offering predictable monthly payments that can make budgeting easier.
• Variable-rate loans have interest rates that can change over time, which may lead to fluctuating monthly payments. 

Lender transparency and support 

Look for lenders who explain your options clearly and offer support — no pressure, no confusion. At Advance America, we offer a variety of personal loans suited to different needs of borrowers. Compare your loan options on our website or visit us in-store to discuss which of our products might be right for you. 

MORE ON PERSONAL LOANS 

• Personal Loans for the Self-Employed
• 7 Reasons to Use Personal Loans
• What Credit Score Do I Need for a Personal Loan?