Aug 13, 2020
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I Have a Medical Emergency. What Kind of Loans Can I Take Out?

I went to the emergency room last week, and wound up having to stay at the hospital overnight. I don’t have insurance, so I walked away with an astronomical bill that I can’t afford right now. I’ve decided that taking out a personal loan will be my best course of action, but I know there are many types of loans to choose from.

Can you help me understand the different types of personal loans?

Sorry to hear about your emergency room visit. Many Americans don’t have insurance and wind up with outrageously expensive hospital bills after receiving the medical care they need.

Taking out a personal loan to cover these costs is a risk, but it sounds like you’ve already made your decision.

As for the types of personal loans, you have a few options.

An unsecured personal loan is the most popular type of loan among consumers. These come with the benefit of not having to put up collateral, but the lack of collateral also means that you’ll pay a higher interest rate.

Unsecured loans can come in the form of a traditional bank loan or instant loans online. You receive one lump sum, and you’ll have a set payment every month for the term of the loan. This is also known as an installment loan, and it offers predictable monthly payments.

The biggest drawback with this type of loan is that you need to have good credit to get approved and receive a lower interest rate. There are options for people with less-than-perfect credit, but you’ll pay more in the form of interest – which translates to a higher monthly payment.

You can also take out a secured loans, which is backed by collateral. Mortgages and car loans are two types of secured loans. Most personal loans are unsecured, but there are some banks and credit unions that will offer loans backed by a savings account or CD.

Because these loans are backed by collateral, they come with the benefit of having lower interest rates. But that lower rate comes at a higher risk to you. If you default on the loan, you could lose your collateral to the bank.

Most personal loans – whether secured or unsecured – have fixed interest rates. This means that your rate and monthly payments will remain steady over time. It’s easier to budget for this type of loan because your payments are the same amount every single month throughout the term of the loan. But because the lender is taking on more risk, interest rates may be higher overall.

There are also loans with variable interest rates. This means that your rate can change over the life of the loan, and it’s more commonly found with lines of credit. With a line of credit, the lender approves you to borrow up to a certain amount.

One benefit to a line of credit is that you’ll only pay interest on what you borrow, and you can borrow only what you need. But if interest rates rise, your payments will increase. Some lenders will also charge additional fees for this type of credit.

Because you know exactly how much your bill is, it makes more sense to take out a fixed-rate loan for a specified amount.

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