When you need more money for a purchase than you have time to save, you need to get a loan. With the plethora of businesses offering loans, it’s a good idea to familiarize yourself with the different types of loans available to you. Even though multiple loan products can provide the cash you need, they are not identical. Know which options are more beneficial to you before you visit with a lender to ensure you don’t end up with the wrong loan.
Equity loan options
If you own a home that’s worth more than you owe, you can get a loan utilizing the difference, or equity. You may hear people refer to this as a second mortgage, but that doesn’t mean you have to use your mortgage company. Online lenders and banks can also help you with this option.
This type of loan takes on three distinct forms: home equity loan, home equity line of credit and home improvement loan. The home equity loan and line of credit work exactly like standard personal loans and lines of credit, with the exception being you use your home as collateral. Home improvement loans typically require a contractor to sign the loan paperwork to guarantee work is being performed on the home. Because your home is collateral, interest rates on equity products often offer more favorable interest rates than personal loans.
Personal loan options
A personal loan is any loan an individual can apply for. Although equity loans technically meet this requirement, they get a separate category because of the complexity and legal differences. You can get a loan in this category with or without collateral and the term can be close-ended or revolving.
Options in this type include credit cards, signature loans and auto loans. The main difference between your options is that auto loans are always used to purchase a vehicle and secured by the purchase, while the remaining personal loan options can be unsecured or secured. It’s important to note that credit cards are not your only personal revolving credit option. Personal lines of credit offered by financial institutions perform the same function, but often with lower interest rates.
Business loan options
You can get a loan for business purposes to cover start-up or operating expenses. By definition, a business loan is one obtained using the business’s credit. If you’re just starting your business, you can get a personal loan to cover your costs, but it is considered a personal loan, not a business loan.
Keep in mind that you can get a loan not discussed here because lenders tailor loans to meet your particular needs. In general, if you understand these three classifications, you can grasp the details of any custom loan product, no matter how complex.
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