A loan, in its simplest form, is the act of borrowing money. There is an expectation that it will be paid back with interest. Not all loans are created equally, and there are several different types of loans for different situations. You may need to borrow money to buy a car, purchase a house, or to simply pay for an emergency expense. Many places offer loans but, where is the best place to go when you need a specific loan?
There are a few different places to get a car loan from. Most dealerships, new and used, will offer some sort of financing program. This can save you the trouble of having to find financing at another institution. However, many dealerships have a much higher interest rate than other places.
Going into a car dealership with financing already in hand provides you with a valuable bargaining chip. Banks offer highly competitive rates, but they tend to cater to individuals with better credit scores. Your current bank is a good place to start. Another place that offers rather convenient rates is a credit union. Credit unions are nonprofit and their operating costs are low. However, you have to be a member of the credit union in order to get a loan through them.
Buying a home is one of the most expensive things you will ever buy. Most banks and credit unions offer home loans. Both have their pros and cons. Credit unions tend to be more competitive, but they only provide loans to their members. Banks can be rather strict with their loans, offering them only to borrowers with good credit scores.
FHA (federal housing association) insured loans are a better option if you have a lower credit score. In 2016, the average FHA homebuyer score was 686 while the average score of a regular homebuyer was 753. Your credit score must be at least 580 to get a loan with a down payment as low as 3.5%. Lower scores need a 10% down payment.
If you are an active-duty service member, retired or discharged, you can get a VA (Veteran’s Affairs) guaranteed mortgage. These loans are underused as many people who served aren’t aware that they are eligible. They allow you the advantage of paying zero down, and have low interest rates. If you are currently serving in the military, or have served in the past, it is well worth it to find out if you are eligible.
Personal loans are taken out to cover a variety of different things. You may need money to cover the cost of moving expenses, or you may want to consolidate your debts. Or perhaps you want to buy the perfect engagement ring. Banks and credit unions offer unsecured and secured personal loans. Unsecured loans don’t require backing, but you need to have good credit. The interest rates are often over 10%. Secured loans, such as a home equity loan, have lower interest rates. However, you risk your personal assets if you don’t make payments.
Another type of loan to consider is a peer-to-peer, or marketplace, loan. These types of loans are funded by individuals who are investing in the loan. The interest rate varies greatly depending upon your credit score, as do the fees attached to the loan.
Emergencies happen and you need money fast. Your car may have broken down and you don’t have the money to pay for the repairs. If you need money that day, you can take a cash advance out from your credit card. However, the APR for doing so is higher than your APR for regular purchases. Many banks also charge a fee. If you don’t want to take out a cash advance, you can opt for an online personal loan. These loans pay typically within one business day. Some pay in as little as an hour. Your credit score determines your interest rate. Some lenders may specifically cater to those with good credit, while others cater to those with bad credit.
Probably the least risky loan is a loan from a family member. These loans can be awkward though. You can choose to draw up a repayment agreement if it would help. If you can wait a few days, you can also consider a marketplace loan.
College is expensive. Many students cannot afford to attend without some sort of loan. The best place to start is with the FAFSA and federal student loans. These are done directly through the school. Stafford loans have fixed interest rates and offer the best repayment terms. After federal loans, you can look at state-sponsored loans. These loans are offered to students going to school in-state. Variable rates tend to be lower than fixed rates, but they also have no cap. State-sponsored loans also tend to require a cosigner.
Small Business Loans
Starting up a small business is an exciting time but, it can be difficult to get started if you don’t have the funds to do so. Small businesses don’t usually require that much money to get up and running, so getting a loan from a bank can be difficult. There are small business loans, but they require a good credit score and some form of collateral. Microloans are usually a great place to start. These loans are designed for those who need less than $50,000 and who have little to no credit history. There are stipulations as to how the money can be used. You can also try an angel investor. An angel investor is an already successful businessperson looking to invest in the next great thing. You need to have a solid business plan, a good management team and have something easily scalable but, having an angel investor can be an invaluable asset on your side.
There are numerous places that you can borrow money from. If you are in need of a loan, whether for a car, a home or something else, be sure to do your research first and assess the pros and cons of each type of loan before you sign.