What are the Different Types of Personal Loan Services?

Lainie Petersen

Personal loan services can help people get the money they need to pay or consolidate bills, go to school, or start a business. Several types of financial institutions offer personal loans, including banks and credit unions. Other types of personal loan services include peer-to-peer lending services, social loan programs, and independent financing companies.

A personal bank loan may help pay for school expenses.
A personal bank loan may help pay for school expenses.

For many people, banks and credit unions are the most trusted sources of personal loan services. As banks and credit unions are usually regulated by strict laws, borrowing from them is often less risky than borrowing from other institutions and businesses. They may also be able to give better interest rates and loan terms than other personal loan services.

Banks are common lenders of personal loans.
Banks are common lenders of personal loans.

Independent finance companies also offer personal loans. Some even specialize in bad or no credit loans, making them an attractive option for someone who can't get a bank loan. The downside to working with these companies is that they may not be able to offer good interest rates or terms, and they are usually not as tightly regulated as banks. Some of these companies specialize in loans with very high interest rates, such as payday loans, which can be very difficult to pay off over time.

Several Internet-based personal loan services match borrowers with companies that lend money. The service typically collects a potential borrower's information and sends it to lenders that can evaluate the applicant's credit information and either extend or decline to offer credit. Credit-worthy applicants may find that they receive several loan offers that they can then compare and contrast on the personal loan services site. The site may also function as an ongoing loan servicing portal, enabling both lender and borrower to communicate and monitor the loan's repayment.

Peer-to-peer lending services, on the other hand, encourage individuals to lend to other individuals. People who need a loan can post their need to a peer-to-peer lending site, and lenders can bid on fulfilling the loan, either entirely or in part, by offering a specific interest rate. If enough lenders bid on the loan, the peer-to-peer lending service then manages the loan's repayment. Social loan services are a spin-off of peer-to-peer lending. The social loan service manages the repayment of the loan and enforces its terms, but the borrower solicits personal loans from friends and family instead of strangers. The accountability provided by the involvement of a third-party service can help protect the integrity of the loan process and preserve friendships.

Personal loans may be granted to start a small business.
Personal loans may be granted to start a small business.

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