Types of Personal Loans Explained, and How to Compare Offers
Unsecured, secured, co-signed, credit union and debt consolidation loans work differently. Here's what each one is, which costly loans to avoid, and how to compare offers.
A personal loan sounds like one product, but there are several kinds, and they work quite differently. Some need collateral, some need a co-signer, and some are built for one job, like paying off other debts.
Knowing the types makes it much easier to compare offers and spot the ones to stay away from. This page explains the main types. The second page is the practical part: how to compare offers by APR and total cost, step by step. It's general education, not financial advice.
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What a personal loan is
A personal loan is usually an installment loan. You borrow a set amount, receive it as a lump sum, and repay it in fixed monthly payments over a set term, often a few years. People use them for things like consolidating debt, car repairs, medical bills or moving costs.
The cost comes from interest and sometimes fees, such as an origination fee that may be taken out of the money you receive. Both are built into the APR, which is why APR is one of the two numbers you'll compare on the next page.
The main types at a glance
| Type | How it works | Main thing to watch |
|---|---|---|
| Unsecured | Based on your credit and income, with no collateral | The cost depends heavily on your credit |
| Secured | Backed by savings, a certificate of deposit or another asset | You can lose the collateral if you don't repay |
| Co-signed | A second person agrees to repay if you don't | The co-signer's credit is on the line too |
| Credit union | Offered to members, sometimes with more flexible terms | You need to become a member first |
| Debt consolidation | Pays off other debts, leaving one payment | Only helps if the total cost is lower |
Unsecured, secured and co-signed loans
Unsecured loans
An unsecured loan isn't backed by anything you own. The lender decides based on your credit history, income and existing debts. It's the most common kind of personal loan, and borrowers with stronger credit generally get lower costs.
Secured loans
A secured loan is backed by collateral, such as money in a savings account or certificate of deposit at the same bank or credit union. Because the lender has something to fall back on, it may be easier to get or cost less. The risk is plain: if you don't repay, the lender can take the collateral.
Co-signed loans
With a co-signed loan, a second person signs with you and becomes legally responsible for repaying it if you don't. It can help you qualify, but late payments can show up on the co-signer's credit too. Only ask someone who understands that risk, and only co-sign for someone else if you could afford to repay the loan yourself.
Credit union loans
Credit unions are not-for-profit and owned by their members. Many offer personal loans, and some are more flexible with members who have fair credit or a short history. You'll need to join first, usually based on where you live, work or study, or through a family member.
Some federal credit unions also offer small, short-term loans called payday alternative loans. They are meant as a lower-cost option to payday loans, under rules set by the federal credit union regulator. Ask a local credit union whether it offers them.
Debt consolidation loans
A debt consolidation loan is a personal loan used to pay off several other debts, often credit card balances, so you have one payment instead of many. Some lenders send the money directly to your other creditors.
It only helps if the new loan costs less in total, or if one fixed payment genuinely helps you stay on track. Watch for two traps:
- A longer term that lowers the monthly payment but raises the total you repay.
- Running the cards back up after the loan has paid them off.
Once you know which type fits your situation, the next step is comparing real offers side by side.