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Dear Personal Loan Adviser,
I need to borrow some money but don’t have enough equity in my home to get a home equity loan. I’m considering a personal loan.

Are there different types of personal loan lenders? If so, are some types better than others?
— Charlie Credit

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Dear Charlie,
Personal loans, also known as signature loans, are unsecured, meaning the lender doesn’t have any collateral backing the loan. Banks and credit unions offer these loans, but a relatively new player on the scene is the “peer-to-peer” lender.

The peer-to-peer part

Even with peer-to-peer lending, you are borrowing from a bank. People decide whether they want to invest in your loan. That’s the peer-to-peer lending part.

If enough investors bid to invest in your loan, the bank will make the loan to you. The bank then sells the loan to an investment company that securitizes it into debt held by the peer investors. Peer-to-peer lenders include Lending Club and Prosper.

Try to keep the interest rate and fees low

Regardless of where you decide to get the loan, you’re looking to minimize the interest rate and fees on the loan. The peer-to-peer lenders will let you know the interest rate on the loan, without negatively impacting your credit score.

The interest rate will depend in large part on your credit history. On its website, Prosper says annual percentage rates by Prosper Rating (its credit rating) range from 5.99% (AA) to 36% (high risk) for 1st-time borrowers. “The average APR for borrowers during the period May 1, 2014 through October 31, 2014 was 17.87%,” it says.

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