Knowing what loans are available is essential to make good borrowing decisions. Payday loans, with their high interest rates and fees, can be dangerous to your financial health. Personal loans often offer better terms.

Personal loans are typically unsecured debt with predictable monthly payments and an interest rate based on your creditworthiness. They are also a one-time cash infusion that you repay over a set schedule at a fixed rate.

Payday Loans

While payday loans provide quick cash when it’s most needed, their mounting costs quickly eat up budgets. The short-term debt carries a high interest rate by itself; if the borrower fails to pay in full when due, lenders will charge additional fees that balloon debt in just months.

Credit unions and smaller lending companies may offer more affordable options for borrowers who don’t have good credit scores. These organizations are often more lenient than payday lenders, and they typically charge lower rates. Some also report payment history directly to credit bureaus, which helps consumers repair their overall credit score.

Another option is securing a title loan backed by the value of your car — these come with lower interest rates than payday loans and fewer credit requirements. Finally, local charities or churches might lend money free of charges!

Personal Loans

Monthly payments aside, personal loans work much like payday advances: You borrow a lump sum at one time at a certain fee, then repay it over time at an agreed-upon schedule and rate. This predictability makes them ideal for many people who need cash in case of an emergency or want to consolidate other debts they owe.

There are two types of personal loans: secured and unsecured. Unsecured ones usually require higher amounts paid every month because lenders consider them riskier deals than backed ones. When reviewing any financing terms — not just personal loans — weigh all options carefully to determine which meets both your financial needs today and budget for years to come.

Companies also offer online calculators that compare loan rates, fees and repayment terms with other loan providers. Banks, credit unions, lenders and the like also publish details about their respective products on their websites or in pamphlets so you can get a sense of what your credit score looks like with certain loans.

ARMs

It might make sense to take out a payday or personal loan when cash is tight. But before taking action, try using a family member or friend as your bank; if that fails, look into opening a credit card account before seeking additional debt. According to consumer finance website InCharge Debt Solutions, both methods often offer better terms and lower interest rates than payday or personal loans.

An adjustable rate mortgage (ARM) is ideal for people looking to buy a home they’ll live in only briefly or who want the lowest monthly payment possible to refinance higher-interest fixed-rate debt. Most ARMs start with five- or seven-year fixed-rate periods before resetting.

The interest rate on an ARM consists of two parts: a figure determined by an index plus margin added by your lender; the pair should be identified at closing. ARMs also contain caps that limit how much your interest rate can rise over time.

Unsecured personal loans are the complete opposite of secured loans, which need something from you as a safeguard against defaults — no assets or collateral are needed. These can be fit for those who have little or nothing to their name but desperately need cash. If you don’t want to put your stuff on the line in case of nonpayment, this is an option that might suit you. In most cases, it’s a long and arduous road to get approved for these loans. Your credit history needs to be squeaky clean and your debt-to-income ratio has to be just right. Once these two prerequisites are met, then do lenders even begin considering application.

Unfortunately for borrowers, the amount of money they can take out as well as interest rates differ lender by lender — so there’s no rule of thumb. Those with better credit scores will qualify for more money at lower rates than those with less-than-stellar scores would’ve gotten stuck with.

If you’re unsure whether unsecured personal loans are what you need, consider taking out a cash advance on your credit card instead. It’s cheap and offers flexible payment terms but misses could damage your credit score like dropping a phone in water does to electronics.