Types of Personal Loans

[Last reviewed October 1, 2025]

A personal loan can be a powerful tool for financing senior living. This article will explore the different types of personal loans, their terms, and how to choose the best one for your financial needs. 

What is a personal loan?

A personal loan is money borrowed from a financial institution for personal expenses. It is repaid in monthly installments, including interest, over a predetermined amount of time.

How do personal loans work?

Each personal loan has four main components:

1. Interest rate: A borrower is charged interest on their loan at an annual percentage rate. Financial institutions typically determine the interest rate using credit scores, loan amount, and the loan’s repayment timeline. Borrowers should consider comparing interest rates from a variety of different financial institutions.
2. Monthly payment: Each monthly payment includes a percentage of the initial principal with the loan’s interest.
3. Repayment timeline: Borrowers must repay personal loans by a predetermined date. 
4. Origination fees: An origination fee is a one-time charge that some lenders apply to loans to cover processing costs. Not all personal loans include an origination fee, but many do. 

Types of personal loans

Now that you have a basic understanding of personal loans, let’s examine the different types, including secured, unsecured, cosigned, and joint loans.

Secured personal loans

A secured personal loan is backed by collateral, which can be an asset or cash. Typical assets borrowers use to secure a loan include vehicles, homes, property, and permanent life insurance policies.

• Pros: Since a secured personal loan presents a lower risk for a financial institution, borrowers can often obtain a lower interest rate.
• Cons: If the borrower defaults on the personal loan, the financial institution can seize the collateral. Additionally, borrowers without sufficient collateral are ineligible for this type of loan.

Unsecured personal loans

An unsecured personal loan does not require a borrower to present collateral. A financial institution will consider a borrower’s credit score and income level to determine if lending money is worth the risk.

• Pros: Unsecured personal loans may be easier to obtain, as they do not require collateral.
• Cons: Since the risk of an unsecured personal loan is higher for financial institutions, they typically come with higher interest rates. A financial institution can also bring a borrower to court to collect delinquent debts.

Cosigned and joint loans

A cosigned personal loan involves a third-party person’s agreement to repay the loan amount if a borrower fails to repay it. A cosigner does not have access to the personal loan’s funds. Typical cosigners are family members or close friends. 

A joint personal loan involves two borrowers signing for a loan. Unlike a cosigner, a co-borrower can access the loan’s funds. Typically, co-borrowers are business partners or spouses. 

• Pros: Adding a cosigner or co-borrower to a personal loan decreases risk for the financial institution, which typically lowers the loan’s interest rate.
• Cons: If one party fails to meet the financial obligations, all parties involved in the loan are still liable for its terms.

Loan interest rates

Loans come with either fixed or variable interest rates.

Fixed-rate loans

A fixed-rate personal loan “is a loan where the interest rate on the loan remains the same for the life of the loan,” according to Investopedia. It offers a set interest rate that guarantees a set monthly payment. This provides the borrower with a level of predictability to ensure a balanced budget.

Variable-rate loans

With a variable-rate loan, the interest rate fluctuates. The rate is tied to a benchmark that a financial institution sets. When the benchmark rate changes, a borrower’s monthly payment changes. Depending on current interest rates and the repayment timeline, a borrower may ultimately end up paying more or less in interest with a variable-rate loan.

How to get a personal loan

When thinking about taking out a personal loan, a borrower should consider a variety of factors:

• How much to borrow. A financial institution may approve you for a loan up to a certain amount, but you can potentially save money by borrowing only what you need. 
• Monthly payments. Can you afford the monthly amount owed on the personal loan?
• Credit score. It is always best to know your credit score before a lender makes a hard inquiry. Many lenders base the loan amount, terms, and overall approval on a borrower’s credit score. 
• Lender. There might be other lending options that provide better terms for your situation. 

Steps for getting a personal loan

Once you are certain a personal loan is the right financial choice, follow these steps to obtain one:

1. Choose a financial institution. There are two types of financial institutions: banking and non-banking. A banking institution has a banking license and is governed by the Federal Reserve, FDIC, OCC, and NCUA. Banking institutions like local banks and credit unions are allowed to accept deposits. Non-banking financial institutions, such as peer-to-peer lenders, insurance companies, payday lenders, and online finance companies, cannot accept deposits and aren’t federally regulated. Their loan interest rates are often higher, but they may approve a loan that a banking institution wouldn’t. 
2. Check eligibility. Visit the financial institution’s website or call the lender to learn about personal loan requirements, such as minimum credit score, income threshold, or debt-to-income ratio.
3. Get prequalified. Most financial institutions allow borrowers to perform a soft inquiry to ensure they fit the general loan guidelines. Contact the financial institution to prequalify. 
4. Examine loan details. Examine the loan’s amount, monthly payment, interest rate, and interest type to determine the penalties for prepayment and arbitration agreements. 
5. Apply for the loan. Submit your loan application. Coordinate multiple applications in a 14- to 30-day time frame to minimize the impact on your credit score. 

Looking for a personal loan to cover senior living? Visit ElderLife Financial Services to browse your options. 

This information is for educational purposes and is not legal, financial, tax, or investment advice. It should not be substituted for information from professionals authorized to practice in your area. You should always consult a suitably qualified professional regarding your specific situation.