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Types of Personal Loans: 8 Options and When to Use Each
Choosing a personal loan starts with knowing which type you're actually borrowing.
October 19, 2026
Choosing a personal loan starts with knowing which type you're actually borrowing.
October 19, 2026
People use personal loans for debt consolidation, renovations and vacations, or to cover bills and everyday living costs when they're stretched thin. Most are marketed to fit several needs, but they're typically repaid on a fixed schedule at a fixed rate.
They're also popular: 67.5 million personal loans appeared on consumers' credit reports as 2026 began, up 7% from 63.2 million in 2024, and 38% of consumers now have one, according to Experian.
Expert Take: Personal loans can help you pay for things over time in a structured way, but they add to your debt load. In my reporting, more consumers are using personal loans and buy now, pay later plans for everyday living costs, not one-off big-ticket items, so make sure any new payment fits your budget before you borrow.
Here are eight types of personal loans, when to use them and what to avoid. Once you know which fits, you can compare personal loans side by side.
Before you compare types, know that most personal loans are either secured or unsecured:
Unsecured: Approval is based on your credit profile, income and other financial factors, with no collateral. It's a good fit if you have good to strong credit, a one-time need and don't want to put your assets on the line. If your credit is poor or fair, you may face higher interest rates or a harder approval, depending on the lender.
Secured: You back the loan with collateral, such as savings, a certificate of deposit, a vehicle or another item. Secured personal loans can be easier to get with fair credit, but you could lose the asset if you can't repay.
Mortgages and home equity loans are secured loans too, though they aren't personal loans.
How it works: One new loan pays off multiple balances. Learn more about how debt consolidation works.
Best when: The new APR and term lower your total cost and you have a payoff plan.
Watch out for: Origination fees and running your cards back up.
How it works: You draw funds as needed up to a limit and pay interest only on what you use.
Best when: You have phased projects or uneven cash needs.
Watch out for: Variable rates and the temptation to keep redrawing.
How it works: Two borrowers share access to the funds and full liability for the debt.
Best when: You share an expense and both want equal ownership of the debt.
Watch out for: A missed payment hurts both borrowers' credit.
How it works: The primary borrower gets the funds, and the cosigner backs the debt.
Best when: Your credit is lower and you can't get a good rate or terms on your own.
Watch out for: The cosigner is responsible if the borrower defaults.
How it works: You repay in installments while the lender holds the money and reports your payments to the credit bureaus. When you finish, you get the funds, minus any interest and fees.
Best when: You're building or repairing your credit and don't need cash right now.
Watch out for: It isn't spending money, so it won't help in an urgent situation.
How it works: You split a purchase into short installments at checkout, often "pay in four."
Best when: You're making a small purchase you can pay off on schedule.
Watch out for: Stacking several plans at once. In a CFPB study of 2022 data, about 63% of BNPL borrowers had more than one loan open at the same time at some point during the year.
How it works: Small-dollar installment loans from banks and credit unions, including credit union Payday Alternative Loans (PALs), which have capped rates and fees and, under the PALs II option, go up to $2,000 for terms of one to 12 months.
Best when: You face an urgent expense, have fair credit and bank with (or can join) a lender that offers them.
Watch out for: Small limits; you may need to be a member or customer first.
How it works: A personal loan marketed for renovations, with no lien on your home.
Best when: You have a defined project, need funds quickly and don't want to tap home equity.
Watch out for: A higher APR than a home equity loan or HELOC; the label may carry the same rates and terms as a standard unsecured loan.
Say you're consolidating about $10,000 of credit card debt. In August 2026, credit card accounts that were charged interest averaged a 22.36% APR, while a 24-month personal loan at a commercial bank averaged 11.90%, according to the Federal Reserve. Moving that debt into a fixed-rate loan at a lower rate may help you pay less interest and get out of debt sooner.
Consolidating may not make sense if the new APR is close to what you already pay or the fees are steep. Compare the total cost of the loan, not just the monthly payment.
Some lenders charge an origination fee that is deducted from the money you receive. For example, you may [receive] $9,500 after the fee is deducted. A smaller payment stretched over a longer term may feel more manageable, but it can cost more by the time the loan is paid off.
Treat payday loans, auto title loans, pawn loans and credit card cash advances as last resorts, not as alternatives to mainstream personal loans.
Why people use them: They need cash immediately for an emergency and have no savings to tap.
Watch out for: A typical two-week payday loan with a $15-per-$100 fee works out to an APR of almost 400%, according to the Consumer Financial Protection Bureau, and some states don't allow payday lending at all. If you can't repay on time, some states let lenders roll over the loan: You pay the fees, the due date is pushed back and you can get stuck in a fee cycle. If you're already in that cycle, see how to consolidate payday loans.
How it works: Your vehicle is the collateral.
Watch out for: If you can't repay, the lender may let you roll the loan over for another fee, and each rollover adds more interest and fees. If you still can't repay, the lender may repossess and sell your car.
How it works: You hand over an item to a pawnshop in exchange for a short-term cash advance.
Watch out for: The advance is often less than the item's open-market value, and you lose the item if you don't repay.
How it works: You pull cash from your card's credit line instead of taking out a fixed installment loan.
Watch out for: Issuers often charge a separate cash advance APR that's usually higher than your regular one, plus a fee, so check your card agreement's cash advance terms first.
Pro Tip: Watch for personal loan scams when shopping for a loan, such as upfront fees or lenders who promise large sums and approval before they check your credit.
Personal Opinion: If I were strapped for cash, I'd be wary of payday loans and cash advance apps. Even buy now, pay later may be a better option than a payday loan for everyday items. But based on my reporting, if I were struggling financially, I'd contact my creditors right away to work out a payment plan or reach out to a nonprofit credit counseling agency. For something less urgent, I'd rethink my plans or start saving toward my goal.
Choosing a personal loan is, well, personal. A lender may approve you for more than you requested, but "that does not mean you need to take the full amount," said Mitchell. "Borrow for the need, not the approval."
The right loan depends on:
Purpose: Do you need one lump sum with a fixed end date, or money in stages?
Credit and income: Can you qualify for an unsecured loan, or do you need collateral or a cosigner?
Collateral comfort: Would losing a pledged asset hurt more than paying a higher APR?
Second borrower: Is a joint or cosigned loan worth the relationship and credit risk?
Amount: How much do you need, and how much will lenders let you borrow?
Speed and total cost: How quickly do you need the cash, and what do the APR, fees and term add up to, not just the monthly payment?
Credit unions, banks and online lenders all offer personal loans, with slightly different options, so shop around to find the right fit.
Expert Tip: "It's also worth checking with financial institutions where you already have a relationship, since some may offer pre-approved loans or relationship-based rate discounts," said Mitchell.
With a fixed-rate loan, you know what to expect each month, which can make it easier to budget for repayment. Most personal loans have set terms (typically 12 to 84 months, depending on the lender) and a fixed interest rate, so you'll pay the same amount each month for the life of the loan.
"That predictability can be helpful, but only if the payment fits comfortably alongside your rent, car payment, and other expenses," said Mitchell.
A variable-rate loan moves with a benchmark index, so your rate and payment may rise after you borrow. If payment stability is your priority, choose a fixed rate when you can, and check how a higher rate would change your payment before you sign a variable-rate offer.
You're consolidating high-interest card debt and want to know whether a consolidation loan beats your current mix.
You have stronger credit and want an unsecured lump sum without pledging assets.
Your credit is fair and you're open to collateral or a cosigner.
You're building credit and want a credit-builder loan instead of more revolving debt.
You're weighing buy now, pay later against a traditional installment loan for a larger need.
If you'd borrow only for discretionary spending you can't repay on schedule, pause first. Read about reasons people borrow, including when to skip a loan, then come back if you still have a clear need.
Check your credit: It tells you whether an unsecured, secured or cosigned loan is realistic, and in most cases, the higher your score, the lower your rate. Review the personal loan requirements lenders check before you apply.
Set your numbers: Write down what you'll use the loan for, how much you need to borrow and the highest monthly payment you can afford. A shorter term usually means less interest over the life of the loan but a higher payment, so if you can only afford a small payment, a longer term may be safer.
Prequalify with multiple lenders: Use soft-pull prequalification when it's offered, since a soft inquiry doesn't affect your credit score, and compare the APR, fees and terms from each lender.
Apply for the best offer: Choose the offer that fits your situation best, and read the loan agreement before you sign.
Most personal loans work the same way under the hood: a lump sum repaid in fixed installments, with or without collateral. The type that fits depends on why you're borrowing, your credit and how much risk you're willing to take on. Compare the total cost, not just the monthly payment, and steer clear of payday, title and pawn loans unless you've exhausted safer options.
This guide covers eight common types, from debt consolidation to credit-builder loans. Lenders may market them under different names, like a "renovation loan" or "vacation loan," but many carry similar rates and terms.
A personal loan often costs less than carrying a credit card balance. In August 2026, the average 24-month personal loan rate at commercial banks was about 10 percentage points lower than the average rate on credit card accounts charged interest. A 0% balance transfer card can be cheaper still if you can pay off the balance before the promotion ends.
It varies by lender. Some online lenders can fund as soon as the next business day, while banks and credit unions can take longer, so confirm the timeline on the offer you accept.
Most lenders let you use a personal loan for debt payoff, expenses or projects, subject to their rules. Common restrictions include illegal activity and, at some lenders, certain education costs or home down payments.
No. A personal loan is typically a lump sum that you repay in fixed installments, while a personal line of credit lets you borrow, repay and borrow again up to a limit.
This guide draws on Federal Reserve consumer credit data (August 2026), Experian's personal loan research, CFPB materials on payday loans and buy now, pay later, NCUA guidance on payday alternative loans, and FTC consumer guidance on car title loans. Expert input comes from Courtney Mitchell, head of credit card and unsecured lending at Citizens. We don't rank any lenders in this guide.
Experian, "Personal Loan Use Reaches New High; Rate Cuts May Drive More Activity" (2026)
Board of Governors of the Federal Reserve System, "Consumer Credit – G.19" (October 2026 release)
Consumer Financial Protection Bureau, "Consumer Use of Buy Now, Pay Later and Other Unsecured Debt" (2025)
Consumer Financial Protection Bureau, "What is a payday loan?" (2024)
Consumer Financial Protection Bureau, "What does it mean to renew or roll over a payday loan?"
National Credit Union Administration, "Payday Alternative Loan Rule Will Create More Alternatives for Borrowers" (2019)
Federal Trade Commission, "Car Title Loans Explained" (consumer.gov)
Maya Dollarhide is a writer specializing in personal finance, with a special focus on student loans and debt consolidation and management. She has written for Yahoo Finance, Investopedia, Student Loan Hero, Bankrate, and other publications.
