Did you know that there are different kinds of loans? As a Loan Officer, I constantly educate home buyers on the wide verity of loans available. There is no one size fits all approach when it comes to home loans. There a countless types of loans and structures available to you, so you can get a loan that fits your situation. Loans from from different lenders, have different rules, payment options, and time frames.
To help you brush-up on your borrowing know-how, we’ve compiled five types of loans you might not know about.
Cash Advances (aka Costly Borrowing)
A cash advance loan is a loan typically extended by your credit card provider. These loans are often smaller in size, such as a few hundred dollars. They generally have high interest payments and fees, meaning they can be extremely expensive.
Equity Loans (aka Borrowing From Yourself)
With an equity loan, you leverage your personal equity. This could include your home’s equity, your retirement fund, and even your life insurance. Essentially, you’re liquefying these assets with a clearly defined repayment plan.
Reverse Mortgages (aka Leveraging Your House)
A reverse mortgage is similar to an equity loan, in that you are leveraging the equity in your house. The difference is, with a reverse mortgage there is no repayment plan. As you recoup the equity in your home in liquid assets, the lender takes ownership of your home. Traditionally, reverse mortgages are used by retirees.
Personal Loans (aka the Friends & Family Loan)
Personal loans can be extended to you by friends, family or an institution. With the advent of crowdfunding, you can even get a personal loan from complete strangers. The size and term length of the loan can vary widely. As with most loans, the higher your credit score, the lower your interest rate will likely be. Before you take on a personal loan, make sure to read the fine print. You and the party from which you are borrowing should create a legal document outlining the terms. These terms should include (but are not limited to): the total sum you’re borrowing, your interest rate, your payment schedule, and the specific terms for how the lender can recoup their losses in the event you default.
Debt Consolidation Loans (aka Repaying Old Debts with a New Loan)
Debt consolidation is exactly what it sounds like. It allows you to pay off your debt with a new loan. For those who find themselves in serious financial trouble, debt consolidation can offer a way out. It can allow you to lower your interest rate and simplify your monthly payment plan. However, debt consolidation will also seriously harm your credit report for some time. It isn’t a decision to make lightly.
Have additional questions about loan types or simply ready to explore traditional mortgages? Give me a call today.