Knowing how to choose the appropriate loan for you starts with many decisions, and while you need to think about affordability, one of the biggest factors should be what you are using it for. You don’t want to take out a Loan from a loaner in Tennessee for home improvements after all.
While some of the most important factors include what you will use it for, what the interest rate is like, how high monthly payments are, and other factors of affordability, one of the most important things you should pay attention to is what you need the loan for in the first place!
So, this is what we will discuss with you today! If you are unaware, there are different loan types for different things, knowing which is which, should help you on your way to choosing the right loan for you!
Choosing The Appropriate Loan For You
Before we get into what different loan types are for, let’s discuss the other factors that will influence your choice.
- The Interest rate: Always consider how much the interest rate is, check if it is variable or fixed. It is always best to choose the loan that has the lowest rate as it can save you thousands in interest fees.
- Loan Term: This means the length of the loan, or how long it is for. A Loan with a short period will often have a lower rate of interest than longer loans. The shorter the period, the more you save.
- Monthly installments: You will need to have at least a vague idea of what the monthly payments will be, as you need to ensure that you can afford to pay off the loan.
- Fees: Lenders often include other fees with a loan and this can add up fast. Always read the fine print before you agree to make sure you know EXACTLY what you are paying for!
Also consider if there are down payment requirements, consider your credit score, as those with a high credit score often get the best interest rates.
Loans For Buying Your New Home
Before you are looking for a loan to help you buy a new home, look at how much you can afford first. Look at the price of the home and how much down payment you can afford as well as what monthly installments you could afford as well.
With a budget then consider your options.
The most typical loan that is used for home purchases is a mortgage.
Mortgages are loans from private lenders which are not government backed. They can offer you a lower interest rate or high lending limits in comparison to government loans, they also often require down payments and a high credit score too.
Always look at a few lenders before you decide. Explore terms and rates to see if they offer what you seek.
Loans For Home Improvements
If you are looking to spruce up your home, you can get a home improvement loan to help pay for this. There are three main loan types of this.
The first is a home equity loan which is a loan that has fixed rate installments allowing you to borrow a part of your home equity. They give you a certain financial sum in one go that will need to be repaid in monthly installments over a set period.
The other option is a home equity line of credit. These allow you to borrow 60% to 80% of your home value minus the balance on your mortgage. This is revolving credit, allowing you to tap into a money pool, although they do cap the amount you can borrow.
Personal loans are also an option, which you can repay over several months or years, they can be fixed or variable in interest.
Loans That Help Pay Off Debt
If you want a loan to help you pay off debt, especially multiple high interest debts, one of the best ways to do this is with a debt consolidation loan.
This loan is a personal loan that is made for paying off high interest debts, usually from credit cards. With this you combine several debts into one with only one monthly repayment.
There should be a lower APR, so you save money over time.
Loans For Education
For education a federal student loan is the best idea, each is different, some will be offered only to those who need it, others will be offered to anyone.
These are usually better than private student loans. However, private student loans are still an option and can help if you have reached the limit for federal loans, but they have less flexible repayment plans.
Loans For Vehicular Financing
You can finance a car with an auto loan, but when you do always check for a low APR, and an attractive down payment.
Common auto loan terms will be 36 to 72 months. Always check you can afford the monthly payments before you decide, do not forget that your credit score will affect this.
Bottom Line: Make Sure You Can Afford It First!
The main thing you need to remember is that before you take out any loan, you need to ensure you can afford it first!
