The time may come when a person needs to borrow money for some purpose. Most individuals choose to finance the purchase of a new home or car, yet there are numerous other reasons why a loan may be taken out. For some, the loan is used to consolidate debt and, for others, it will be put to use to fund a major purchase. Regardless of why money is being obtained, individuals will find they have a variety of borrowing options to select from. The key is to find the right choice for any given situation.
Personal Loans are great for those who want to obtain a lump sum of money at any given time. This money is typically used to fund a large purchase and the loan features either a fixed or variable interest rate. Many lenders require a minimum amount be borrowed with this funding option, and the maximum amount provided will be based on the borrower’s credit score and other factors determined by the lender.
With this type of loan, various repayment options are offered. Some opt for weekly payments, others choose bi-weekly obligations and certain individuals opt for semi-monthly or monthly plans. The payments include both the principal repayment and the interest charged.
A borrower may also choose between a secured and unsecured loan. Secured loans are backed by some form of collateral, often a property or investment. Financial institutions are typically willing to lend more money with this type of product and offer a lower interest rate. In contrast, unsecured loans are often for a lower amount, yet offer faster approval times.
Individuals who feel more comfortable with a structured repayment plan typically choose this option. They know exactly when the loan will be paid off. In addition, personal loans typically don’t have an early prepayment charge.
Lines Of Credit
Lines of Credit are preferred by those who want more flexible borrowing arrangements. Many choose this option when they wish to make multiple purchases over a period of time, as this line of credit may be reused. The borrower can access amounts up to the maximum allowed at any given time. The interest rate on this type of funding option is variable, although there is usually a minimum line of credit that must be obtained.
With a line of credit, the interest charged is only on the amount used, not the total amount of the line of credit. Regardless of how much is borrowed, the entire amount must be paid, along with any interest accrued, when the loan term ends. As with personal loans, borrowers will find they have options.
Secured personal lines of credit typically are backed by investments or property. As a result, the lending institution usually offers a higher credit line and a lower interest rate. Unsecured lines of credit may also be offered, yet don’t come with these benefits.
Many borrowers opt for a line of credit because they like the flexibility of this borrowing option. Individuals may choose to pay only the minimum payment each month or pay the entire amount. The interest rate is low, and the funds may be accessed in a variety of ways, such as through an automatic teller machine or by check.
Individuals should consider all options when they wish to borrow money. Personal loans and lines of credit are only two available today. Responsible borrowing requires that all options be taken into account, and consumers need to keep this in mind. Doing so ensures the right option is selected for any given situation.