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June 13, 2018
Unbiased Financial Information Provided by Financial Finesse
Most of us know why we want credit, but we might not be sure of which loan would best suit our needs. Here's a reference guide to help you. Once you know which kind of loan to get, you can focus on finding the best rates and terms.
|LOAN TYPE (purpose)||IDEAL BORROWER||WHERE TO GET IT||TYPICAL COLLATERAL||STANDARD TERMS|
|Auto (buy a car)||Anyone looking to finance part or all of the purchase price of a vehicle||Vehicle being purchased|
New cars: Loans are typically for five years but some places offer terms up to seven years on some vehicles. Can sometimes get 100 percent financing, but expect to pay a higher interest rate.
Used cars: Term may be less than five years, depending on the age of the vehicle. Expect slightly higher interest rates and restrictions on the type and age of the vehicle.
|Mortgage (buy a home)||Anyone wishing to finance the purchase of a home, whether as a primary or secondary residence.||The home being purchased|
Your interest rate depends on many factors (including size of loan, personal credit history, and amount of down payment). Thirty years and fifteen years are standard term lengths. Loans have either an adjustable or a fixed interest rate.
|Home Equity (any purpose)||Homeowners who have built up equity in their homes and wish to borrow against that equity||A second deed of trust is typically required on the property|
Home equity loans are either closed-end (one-time loan and a schedule of fixed monthly payments) or open-end (a revolving line of credit that lets you access money as needed). Because interest on a loan secured by a home is often tax-deductible, using a home equity loan to cover various borrowing needs may save you money.
|Home Improvement (make additions or changes to your home)||Any homeowner with plans to make improvements to their home||Most often secured by the home, though other types of collateral may be considered|
Home improvement loans are typically closed-end (rather than revolving) with set monthly payments and a defined term.
|Student (pay for tuition and other school expenses)||Current or soon-to-be college students||Unsecured loans are available through government programs but some private loans may require collateral.|
Types vary widely. Some are payable directly to the student, others to the parents, and others to the school. Some private loans may require a co-signer, depending on credit history.
|Debt Consolidation (combine all your debts into one loan)||Any person with many different creditors and/or high-interest debt||Debt consolidation loans are typically unsecured.|
A high debt-to-income ratio will result in higher rates for this type of loan. Loan proceeds usually will not be given to you, but used to pay your creditors directly.
|Personal (any purpose)||Anybody needing money for a category not listed above||Personal loans are typically unsecured, though you can often lower your rate by offering some form of collateral, such as a car, home or other asset.|
The interest rate on a personal loan is often lower than credit cards and they provide a fixed date for payoff. However the lender may require a fairly high credit score and/or good payment history.