What to Know About Loans

by Kelly

Obtaining a loan can make it easier to buy a home, go to school or start a business without the need to dip into your savings to do so. Mortgages, student loans, and personal loans are among the most common loan products used to finance a purchase or allow a person to invest in him or herself. Let’s take a look at what it takes to acquire such loans and some key items to know about them.

An Overview of Personal Loans

A personal loan was traditionally used by those who had no credit or poor credit. These days, they are designed to help borrowers with a wide range of credit scores. Personal loans can be used for any purpose, and they come in both secured and unsecured varieties. Secured personal loans tend to have lower interest rates compared to unsecured loans, but your rate will depend on your credit score, the amount that you want to borrow and the repayment term.

Personal loans are generally defined as money received from any source that isn’t earmarked for any specific purpose. For example, if you borrow money from your parents, it could be labeled as a personal loan. However, banks and other financial institutions offer them as well.

An Overview of Student Loans

A student loan is used specifically to pay for college tuition and related expenses such as room and board. They come from a variety of sources such as the federal government or a national bank. Local banks or credit unions may also offer student loans. Generally speaking, you have to be at least 18 years old to be approved for such a loan, and most will need their parents or a guardian to cosign.

However, as you build your credit history, it may be possible to refinance the loan into your name only. Student loans come with low-interest rates, but this is because they must generally be paid in full unless doing so creates a hardship. If you have federal student loans, you may be able to sign up for an income-based repayment plan or have them forgiven in limited cases.

An Overview of Home Loans

A home loan is designed to either help you purchase a home or refinance your existing mortgage. It can come with a fixed rate or a variable rate, and the loan term can range from five years all the way to 30 years. In some cases, you can take up to 40 years to repay your home loan.

Mortgages are typically offered by banks and credit unions, but it is possible to get a mortgage from a private lender. To obtain a loan, you must generally have a steady income, a credit score of over 640 and the ability to make a down payment of anywhere from 3.5 to 20 percent.

While too much debt is never a good thing, borrowing money can provide you with financial flexibility. Prior to getting a loan, it is a good idea to talk to multiple lenders to make sure that you are getting the best possible loan terms.