Types of personal loans

A personal loan can come in handy in many situations, whether it’s paying for an unexpected medical expense, getting funds for a wedding or consolidating high-interest debt. But which type of loan is right for your circumstances? Let’s look at the major types of personal loans and when they might make the most sense.

Unsecured vs. secured personal loans

A personal loan can be either unsecured (it requires no collateral) or secured (it requires collateral).

Unsecured personal loans

Most personal loans are unsecured, which means they don’t require you to use an asset — such as a home or car — as collateral. Whether you’re approved for an unsecured loan and your terms will depend on your creditworthiness, income, debt-to-income ratio and other financial factors.

Being able to get a loan without collateral means you won’t lose your property if you’re unable to pay it back. This also makes unsecured loans riskier for lenders, and the increased risk can mean a slightly higher interest rate than a secured loan.

Secured personal loans

A secured loan is backed by collateral. Collateral can come in many forms, including a house or car. Most lenders that offer secured personal loans let you use money — typically in a savings account or certificate of deposit — as collateral.

Unlike an unsecured loan, if you fail to repay a secured loan, you could lose your property. However, offering collateral as backing for the loan makes you less risky to the lender, and they’re more likely to approve your loan.

Variable- vs. fixed-rate personal loans

Personal loans can be either fixed- or variable-rate. Fixed-rate loans have an interest rate that doesn’t change over the loan term, while variable-rate loan interest rates can. Both variable- and fixed-rate personal loans can be either secured or unsecured.

Fixed-rate personal loans

Most personal loans offer a fixed rate. This means they have a set interest rate for the life of the loan.

One advantage of a fixed-rate loan is monthly payments remain consistent — you make the same payment every month until the loan term is over and it’s repaid in full — making it easier to budget accordingly. Choosing a fixed-rate loan can also make sense if interest rates are rising and will likely continue rising for a while.

Variable-rate personal loans

Variable-rate loans have an interest rate that can go up or down over time based on market conditions.

While variable-rate personal loans might come with a lower interest rate initially, they may be harder to budget around in the long term because your monthly payment can fluctuate with the interest rate.

Debt consolidation loans

A debt consolidation loan is a type of personal loan that lets you combine multiple unsecured debts — such as credit card balances or loans — into one payment.

If you’re able to find a debt consolidation loan with a lower interest rate than your current debts, this can save you money in the long run.  And having one monthly payment instead of several can make staying on top of your finances much simpler.

How to pick the right type of personal loan

Choosing the right personal loan means assessing your financial situation and carefully considering whether you’ll be able to consistently make the required monthly payments. 

While no single type of personal loan is right for every situation, in most cases, an unsecured fixed-rate loan makes the most sense. These don’t require collateral and are easy to budget around due to fixed monthly payments.

Citi offers personal loans to both existing Citi customers and new Citi customers that meet specific eligibility criteria, including an established credit and income history along with additional factors determined by Citi. If you think you could benefit from a Citi Personal Loan, apply online today.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.

Additional Resources

  • Start your personal loan application now!

  • Learn how FICO® Scores are determined, why they matter and more.

  • Review financial terms & definitions to help you better understand credit & finances.