If you need money to fund a large purchase, educational endeavors or an emergency expense, you may be in the market for a loan. As there are different types of loans, you may need to spend time thinking about which one best fits your needs and budget. How do you know which loan is best for you?
What Is the Loan For?
Those who are looking to consolidate debt may wish to take a personal loan or transfer their debt to a new credit card. Those who are looking to pay tax debt or student loan debt may wish to shop for a personal loan or look at peer-to-peer lending options. Peer-to-peer lending options are perfect for those who don’t have good credit or would rather repay a person as opposed to a bank.
Fixed or Variable Interest Rates?
If you think that you can repay the loan quickly or otherwise pay off the balance before interest rates rise, a variable rate loan may be best for you. This is because the rate will stay locked for up to five years regardless of what interest rates do. However, if you are looking to pay off a home loan over 30 years or otherwise need a predictable monthly payment on any type of loan, you should opt for a loan with a fixed interest rate.
What Is Your Credit Score?
Those who have good credit may want to go with an unsecured loan as they can get a low interest rate without having to put up any collateral. Borrowers with poor credit or a limited credit history should consider a secured loan such as a secured credit card or home equity loan. Since the lender can recoup its money by taking ownership of the collateral, interest rates are lower than what the market may bear. Therefore, you can borrow money without having to pay too much for the right to borrow it even if you don’t have the greatest track record when it comes to repaying loans.
Where Will You Borrow the Money?
Where you borrow the money is as important as how much you borrow or what loan type you decide on. For instance, if you borrow money from a credit union, you may get a better rate or other terms than if you went to a bank. However, if you borrowed from your parents, they may not ask you to pay any interest as long as payments are made in a timely manner.
When determining which loan is best for you, it is important to know how much you need and how long it will take to repay the debt. This will help you determine where to go for the money and what type of loan will best meet your needs.