Need to borrow money but not sure where to start? You’ve got company. Walk into any bank or browse online, and you’ll see dozens of loan options – it’s enough to make your head spin.
There’s no one-size-fits-all loan. What works great for your neighbor might be completely wrong for you. Your credit score, how much you need to borrow, and what you’re using the money for all affect which loan makes sense.
We’ve broken down the most common types of loans so you can skip the confusion and get straight to finding what actually works for your situation.
Different Types of Loans
Personal Loans
A personal loan gives you a chunk of cash upfront that you pay back in fixed monthly payments over 2-7 years. Unlike car loans or mortgages, you don’t need to put up your house or car as collateral, as they’re unsecured loans.
You can use the money for pretty much anything – weddings, covering medical bills, or funding a home repair or renovation, and you’ll know exactly what you pay over the life of the loan.
Average Interest Rates / Annual Percentage Rates (APR): 6% to 36% (depends on your credit score)
| Pros | Cons |
| Flexible – use for almost anything | Higher interest rates than secured loans |
| Fixed payments make budgeting easier | Interest rates vary widely by lender |
| No collateral required | Origination fees on some loans |
| Get money quickly (often same day) | Personal liability if you can’t pay |
Installment Loans
An installment loan is basically any loan you pay back in regular, scheduled payments over time. Personal loans are actually a type of installment loan, but the term usually refers to smaller, short-term loans. These are often marketed to people who need quick cash but might not qualify for traditional bank loans because of their credit score.
Average Interest Rates/APRs: 6% to 100%+ (varies dramatically by lender and your credit)
| Pros | Cons |
| Predictable monthly loan payments | Can have very high interest rates |
| Available to people with poor credit | Some lenders charge excessive fees and rates |
| Faster approval than bank loans | Shorter repayment terms than traditional loans |
| Builds credit with on-time payments | Limited loan amounts compared to traditional loans |
Payday Loans
A payday loan is a small, short-term loan that you’re supposed to pay back with your next paycheck. You typically borrow $100 to $1,000 and have about two weeks to pay it back.
These loans are easy to get – you just need a checking account and proof of income – but they come with extremely high costs that can trap you in a cycle of debt.
Average Interest Rates/APRs: 400% to 500%+ (yes, you read that right)
| Pros | Cons |
| Very fast approval (often same day) | Extremely high interest rates and fees |
| No credit check required | Short repayment period creates pressure |
| Easy to qualify with just income proof | Easy to get trapped in a debt cycle |
| Small amounts available quickly | May not report to credit bureaus |
Debt Consolidation Loans
A debt consolidation loan lets you combine multiple debts – like credit cards, medical bills, or other loans – into one single monthly payment. The idea is to get a lower interest rate than what you’re currently paying and simplify your finances. These are usually personal loans specifically used for paying off other debts.
Average Interest Rates/APRs: 6% to 36% (similar to personal loans, since they often are personal loans)
| Pros | Cons |
| One payment instead of juggling multiple | Doesn’t solve the underlying spending problems |
| Potentially lower overall interest rate | May extend how long you’re in debt |
| Fixed payment makes budgeting easier | Temptation to run up new debt on cleared cards |
| Can improve credit by lowering utilization | Closing old accounts can hurt your credit score |
Auto Loans
An auto loan is specifically for buying a car, truck, or other vehicle. The vehicle itself is collateral, meaning the lender can repossess it if you don’t make payments.
You can get car loans from banks, credit unions, dealerships, or online lenders. Generally, you’ll get better rates on newer cars than older ones.
Average Interest Rates/APRs: 4% to 18% (varies by credit score, vehicle age, and loan term)
| Pros | Cons |
| Lower rates than unsecured loans | Vehicle can be repossessed if you default |
| Longer repayment terms available | Car depreciates faster than you pay it off |
| Helps build credit with payments | Gap insurance may be needed |
| Can finance up to 100% of vehicle value | Restrictions on vehicle age and mileage |
Federal Student Loans
The U.S. government provides federal student loans to help pay for college, graduate school, or trade programs. These loans typically offer better terms than private student loans, including fixed interest rates, income-driven repayment plans, and potential loan forgiveness programs. You apply through the Free Application for Federal Student Aid (FAFSA).
Average Interest Rates/APRs: 5% to 7% (fixed rates set by Congress annually)
| Pros | Cons |
| Fixed interest rates | Borrowing limits may not cover the full costs |
| Income-driven repayment options | Interest accrues during school (most loans) |
| Loan forgiveness programs available | Can’t be discharged in bankruptcy easily |
| No credit check for most loans | May require years of payments for forgiveness |
Mortgage Loans
A mortgage loan helps you buy a home by borrowing against the property itself. The house is collateral, so the lender can foreclose if you stop making payments.
Most mortgages last 15 or 30 years, and you’ll typically need to put down at least 3-20% of the home’s purchase price. There are different types like conventional, FHA, VA, and USDA loans.
Average Interest Rates/APRs: 6% to 8% (varies by loan type, credit score, and market conditions)
| Pros | Cons |
| Lowest interest rates of any loan type | Risk of foreclosure if you can’t pay |
| Very long repayment terms (15-30 years) | Large down payment is usually required |
| Tax deductions on mortgage interest | Closing costs can be expensive |
| Builds equity in real estate | Property taxes and insurance are required |
Business Loans
Business loans provide funding for starting, growing, or maintaining a business. They come in many forms – term loans, lines of credit, SBA loans, equipment financing, or invoice factoring.
Lenders look at your business plan, cash flow, credit score and sometimes require collateral. Some loans are personally guaranteed, meaning you’re on the hook even if the business fails.
Average Interest Rates/APRs: 6% to 30% (depends on loan type, business age, and creditworthiness)
| Pros | Cons |
| Can fund business growth and opportunities | Often needs a personal guarantee |
| Various loan types for different needs | Strict qualification requirements |
| SBA loans offer government backing | Extensive paperwork and documentation |
| Builds business credit history | May require collateral or a down payment |
Home Equity Loans
A home equity loan lets you borrow against the value you’ve built up in your home. You get a lump sum upfront and pay it back with fixed monthly payments, usually over 5-30 years. Your home is collateral, so you will risk foreclosure if you can’t repay. You typically need at least 15-20% equity in your home to qualify.
Average Interest Rates/APRs: 7% to 10% (usually higher than mortgage rates but lower than personal loans)
| Pros | Cons |
| Lower rates than unsecured loans | Your home is at risk if you can’t pay |
| Interest may be tax-deductible | Closing costs and fees apply |
| Fixed payments and terms | Reduces equity in your home |
| Large loan amounts available | May have prepayment penalties |
How to Choose The Right Loans for You
Choosing the best loan for you isn’t just about finding the lowest interest rate – though that’s definitely important. You need to think about what you’re using the money for, how much you can afford to pay each month, and how quickly you want to pay it back.
Match the Loan to Your Purpose
Start with the purpose. Need a car? Auto loans tend to have the best rates. Buying a house? You’ll want a mortgage. Consolidating credit card debt or covering unexpected expenses like dental work? A personal loan often makes the most sense. Using the right loan for the right purpose usually gets you better terms.
Know Your Credit Score (But Don’t Let It Stop You)
Your credit score affects your options, but it doesn’t have to limit you completely. If you have good credit (700+), you’ll qualify for the best rates on most loans. If your credit needs work, don’t worry – there are still lenders who specialize in helping people with less-than-perfect credit get the funding they need. The key is finding the right lender for your situation.
Look at Your Monthly Budget
Think about monthly payments too. A longer loan term means lower monthly payments but more interest paid over time. A shorter term means higher payments but less total cost. Figure out what fits your budget without stretching you too thin.
Look Beyond the Interest Rate
Don’t just look at the interest rate – check the APR, which includes fees. A loan with a 5% rate but high fees might cost more than one with a 6% rate and no fees. Also, check whether it’s a fixed vs variable rate – variable rates can change over time, affecting your payments.
Shop Around for the Best Deal
Compare offers and shop around. Rates can vary big time between lenders, so get quotes from banks, credit unions, and online lenders. Online lenders often have more flexible approval requirements and faster processing times than traditional banks, especially if your credit isn’t perfect. Just make sure to compare apples to apples – same loan amount, same term length.
Get a Personal Loan for Your Needs with Yup Loans
Ready to get the funding you need? Yup Loans makes it simple to get a personal loan, even if your credit isn’t perfect. We understand that life happens and unexpected expenses can catch anyone off guard.
Our online application takes just minutes to complete, and you’ll get a decision fast*. We work with a network of trusted lenders who specialize in helping people in all kinds of financial situations³.
Don’t let less-than-perfect credit hold you back from getting the financial help you need. Request funds today and take the first step toward getting your finances back on track.