Types

• Banks offer personal loans at fixed rates and variable rates. A fixed rate will have the same monthly payment for the life of the loan. The interest rate offered on a fixed rate may be slightly higher than the initial interest rate of a variable loan. A variable rate loan will have a fluctuating interest rate, which may cause the monthly payment to go up or down depending on its relation to the prime-lending rate. Unsecured loans that are not backed by collateral usually have higher interest rates than secured loans. A bank can repossess the collateral on a secured loan if the borrower defaults so the interest rate is usually better.
  
  

Size

• The most common unsecured personal loans rage from $2,500 to $25,000, but some banks offer personal loans for as little as $500. Secured personal loan values are based on the value and expected useful life of the borrower's collateral.
  
  

Time Frame

• Most unsecured personal loans are issued by lenders for 12 to 48 months. The length of secured personal loans may be tied to the expected life of the collateral offered by the borrower. For example, with a home equity line, the collateral, a home, is expected to appreciate with time, so the interest rate may be lower and the time of the loan much longer than 48 months.
  
  

Warning

• Most banks offering unsecured personal loans will charge borrowers at least 2 to 3 times the interest rates that they charge borrowers with collateral. Those borrowers who are considered a high credit risk or are looking for payday loans can expect to pay even more. Banks may charge borrowers personal loan initiation fees that effectively increase the stated interest rate.
  
  

Considerations

• Interest paid to banks for a loan that is not secured by a home is not currently tax-deductible for borrowers. Interest rates on personal unsecured loans are usually lower than credit card interest rates. Personal loans will also be paid in full during a fixed period. Therefore, a borrower with high credit card debt may be able to save money by taking out a personal loan to pay off credit cards. Borrowers doing this should consider canceling the credit cards to avoid being tempted to use them again.