If you’ve been following the economic news in our country, you know that people are worried. You also know that banks are more and more hesitant to lend money, especially to those with shaky credit. If you’ve been one of the wise ones, however, who have kept your credit score high and paid your bills off on time, you will find little difficulty obtaining personal loans for just about anything you want, especially if you have collateral to offer.

Personal loans from a bank or credit union are often harder to get than in store financing. The reason is, quite simply, that the bank has no real vested interest in what kinds of products you buy, or from where. Their only concern is whether you will be able to promptly pay back everything you have borrowed, with the appropriate interest. The only thing personal loans take into consideration are your ability to repay the loan, your past credit history, and your collateral.

Because banks make it a bit harder to get a personal loan, the interest rates are usually somewhat less than in house financing. Whether you use a store credit card, finance through a company’s preferred lender, or take your loan directly from the company you are buying a product from, the interest rates need to be higher to offset the losses incurred from lending to riskier borrowers.

Of course, if you are able to get a personal loan, you will save money because you won’t be paying as much in interest. You’d be surprised how much difference even a fraction of a percent can make over the course of a year or two.

If you’re buying a used car, you can also save on peripheral costs. Instead of buying full coverage auto insurance, you can put PLPD on the car. If you’re really worried about replacing the car after an accident, put half of the difference between what you’re paying for PLPD and what you would pay for full coverage into a savings account, and before you know it, you’ll have enough money to pay for your next car outright.

Whatever you’re buying, though, personal loans are almost always less expensive than financing. You should run the numbers yourself, of course, because there are exceptions, but in most cases, your good credit will pay off for you if you take your loans directly through your bank or credit union.

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But, if your credit is good enough to qualify for a personal loan, you can save yourself a boatload of money. Not on interest, so much as on insurance. You might even end up paying a bit more in interest for a personal loan than you would for an auto loan of the same amount. But the difference you can save by not having to have full coverage insurance more than makes up for the little bit of extra interest.

Of course, buying a car this way involves a bit of a different process. Instead of going out to buy a car, and then working the financing out, go see your bank first and see how much of a personal loan you would qualify for. Then go out and shop for the car.

Another advantage to car shopping this way is that you go into it knowing what you have to spend. We don’t recommend buying through a dealership if you’re buying an older car with lots of miles on it. Trust us, they took that used car on trade or bought it at auction from someone else who did, then hiked the price three or four thousand dollars. You’re better off combing the classified ads, or even driving around and looking for “for sale” signs.

But if you do buy a car from a dealership, pick one that is marked between one and two thousand more than you have available. Don’t talk money until you pick out the car, then explain how you intend to use personal loans to pay for it, and how much money you have at your disposal. Make it clear that you will only take the car if you can have it for that amount out the door. Then, refuse to sway, budge, or even discuss other financing options. More often than not, you’ll drive away with the car.

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Today we’ll take a look at each, and look at when it’s best to take them out.

Home Equity Loan

A home equity loan is a lump sum loan that you take out with your home as the collateral. This type of loan is for a fixed amount, and may be relatively large. In many cases, you can borrow up to a certain percentage of the value of your home with this type of loan. Sometimes, these loans are referred to as a “second mortgage.”

A home equity loan is best for when you have major expenses, unexpected expenses, or when you’re making a large investment in your home.  A home equity loan offers you a lower interest rate than a home equity line of credit. The loan term is often longer than it is with other loan types.

Home Equity Line of Credit

A home equity line of credit is a little bit different. This is a line of credit that you can draw on in the same way that you might draw from a credit card or a savings account. The line of credit is secured by the equity in your home. The rate for a home equity line of credit is usually adjustable, which means that it may change from time to time depending on market trends.

A home equity line of credit is best for ongoing projects, such as major renovations to your home that you want to do over a period of time. The advantage to this type of loan is that you only pay for what you borrow. In addition, you can often qualify much easier for a home equity line of credit than you can for a home equity loan.

No matter which type of personal loan you choose to pay for your improvements or renovations, remember that it pays to shop around. Compare rates and costs of loans and lines of credit at several different banks before you commit. In the long run, this can save you hundreds of dollars in interest.

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There are several different types of personal loans you might look into when you’re self-employed, including:

• Traditional bank loans. These personal loans may be secured, and require you to put up some real property as collateral such as a home or a vehicle. They may be unsecured, which is a personal loan that doesn’t require collateral but probably has a higher interest rate.
• Home Equity Line of Credit. This is a loan that’s flexible in its amount and usually in its interest rate. You borrow against the value in your home, and the bank in turn gets a secured interest in the home. This kind of loan comes on an as-needed basis, rather than as a lump sum.
• Credit card cash advances. This is not at all the ideal kind of loan to take when you’re self-employed or otherwise. In some instances, however, it’s really your only option. It beats out other options like payday loans and pawn shops, but just barely. You’ll pay not only a higher rate of interest on the cash advance balance, but also an administrative fee.
• Payday loans. These loans are perfectly legal and they meet a specific need. However, you should avoid them at all costs. Let’s face it, even if the loan period is only two weeks, 300 percent or more is too much to pay in interest.
• Small business loans. There are a number of different types of small business loans available to business owners. If you intend to use the capital to invest in your business, these kinds of loans are probably more ideal than the various kinds of personal loans you might take.

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Federal Perkins Loans
The Perkins loan is a campus-based federal government student loan. The nice feature on this loan is that it is available for undergraduate and graduate students alike. Undergraduate students can borrow up to $5,500 each year, while graduates students can snag up to $8,000 per year.

Perkins loans have rates of around 5%. To help even further, you have a nine-month grace period from the time of your graduation before you have to start repaying this loan. This is one of the longer grace periods for any personal loan. This is quite handy in these times of high unemployment rates!

Federal Stafford Loans
Stafford loans are quite possibly the most common of personal loans to students. These loans can be subsidized or unsubsidized.

A subsidized loan means that the government is taking responsibility for the interest while you are snoozing through class. A subsidized loan does not accrue interest while you are still in school.

Unsubsidized loans are completely the opposite. The biggest item here is that the government is often your lender.

To sweeten the subsidized loan deal you usually have a six-month grace period from graduation before repayment of these loans start. This time allows you to don that suit and become a working stiff.

PLUS Loans
PLUS loans are a bit trickier than the previous personal loan types. PLUS loans will require you to have some established good credit. The advantage to a plus loan is that you can apply to borrow the full amount of attendance.

It is never this simple though. The full amount of attendance comes with a bit of a hitch. Let’s say you need $12,000. You apply for a plus loan. The plus loan knows that you have a grant for $2,000. The plus loan will let you take a grand total of $10,000 to cover the difference. Keep in mind that the cost of attendance will not cover your Solo cup fund.

Direct Consolidation Loans
Direct consolidation loans combine several federal government student loans into one simple personal loan. This helps to simplify your personal loan repayments. You might find a lower rate comes in consolidating all your student personal loans as well. To put the icing on the cake, repayment terms are more flexible with a consolidation loan as well

Take note that if you are still attending school you might not be eligible for consolidating your personal loans.

College should be a time of fun and personal growth. The last thing you want to dread is how those personal loans are mounting up against you. Do some research now and save some trouble later. Beside, we all know you would rather be playing pong with red Solo cups.

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Lending Club is a peer-to-peer lending network. This is almost like getting a loan from a friend, with the exception that there is an application process and the lender is some person you do not even know. It is not as bad or scary as it might sound.

First up, the application process. Lending Club has some higher standards for snagging a loan. You must be employed. You must also have a decent credit score. You must be willing to divulge any financial information that people ask for. Keep in mind there are many other people doing this so you are not alone. People just want to make sure that their investment is going to a good place, you.

You can ask for up to $25,000 from investors. Once you are approved, your money can come from one or more people. This is like any other loan and you must repay it. You repay one account though, not several people. Lending Club makes this process as painless as they can.

So no, you have paid your loan off and you have some money you would like to invest. Why not help someone else the same way you were helped out. That is right, you can put your money into Lending Club and make some income. As an investor, you will get to see all the loan requests, ask the questions, and decide where you would like your money to go.

At the time of this writing, Lending Club has funded $93,595,575 in loans and paid $6,481,303 in interest to investors. That’s not a bad setup. This is not something that any Joe can jump on and do. Therefore, you will have to do a bit of legwork to make sure you qualify to borrow or invest.

Like anything on the internet, research is key. Giving your financial information to anyone is a big risk. Therefore, do some research before you jump on Lending Club. Look for people’s stories and how they were treated. Verify that what you are about to embark on is a smart decision for you.

Lending Club is not something to just jump onto. For those that can make use of it, there is a full circle here. Get some money and give some money back. Do your research, make sure you are comfortable with it, and then take the plunge. Who knows, you might just be making yourself some money and not the bank!

From there, though, the waters get a little bit muddier. It’s not always clear who has the best deal on a personal loan. That’s why, if you’re going to get the best rate and the best overall terms, you need to do a bit of shopping around. Inevitably, you’re going to need to make a decision about whether you want to get that personal loan from a bank or from a credit union.

What are credit unions?

It’s important, first of all, to understand the difference between a bank and a credit union. A credit union is owned by the members. When you join, you’re a part owner in the credit union. You have a voice in how the institution is run. You get to elect the board of directors that actually govern the credit union. Your choices have a direct impact on how the credit union is run. This all stands in contrast to a bank, where only shareholders have any say in the company.

A credit union is also a non-profit organization. This means that the earnings the bank has comes back to their members by way of high-yield savings products and low rates on loans.

Rate really does matter

And so, it really does all come back down to rates. If you can get a better rate at a bank, you should highly consider getting your personal loan through the bank. If you can get a better rate through the credit union, then you should go that route.

On average, you’re going to get a better rate with the credit union. Keep in mind, however, that banks will regularly run specials that can compete directly with the credit union rates, so it’s not a hard and fast rule.

Overall banking services

In fact, some experts suggest that you ditch your bank for a credit union altogether, not just for loan services. There are compelling reasons to do so, too. By being a member in a non-profit institution, you’re more likely to see rates and terms that are in your best interest, rather than the best interests of shareholders.

Photo via Michel Filion

Remember that the 12% to 18% range is for well qualified borrowers. This means that your credit score has to be above 680. If your credit score is below that number and if you’ve missed several bill payments or been late on your payments, you’re not considered a well qualified borrower. You’ll have to settle for a rate closer to the 20% mark or may not be able to get any kind of a personal loan at all.

Fixed Rate Personal Loan

Whatever the rate, if you want a personal a loan with a fixed interest rate consider the following:

• You will only have one interest rate for the life of the loan
• You will one payment for the life a loan
• You will have to take all the money you need at once

Credit Cards

If you decide to take a personal loan on a credit card with a credit limit consider the following:

• You can borrow the money as you need it
• Credit cards offer more convenience and flexibility
• Convenience can be a negative feature, too
• The interest rates will usually be higher
• The interest rates are usually variable
• You can stay in debt longer because you’re only required to make the minimum payment

In general, the more fiscally responsible approach is to get a fixed rate loan. That way you always know you’re making progress each month toward paying down your principal.

Photo via Matti Mattila

A personal loan is a loan you take for, usually, an unspecified purpose. You may want to use the cash to pay off some credit card debt, or you may want to use it to pay for a cruise. A personal loan differs, of course, from a home loan or a car loan. Those loans are used, of course, to purchase a specific item.

Secured loans

In the most basic sense, a secured loan is a loan that’s backed by something valuable that you provide. Typically, this will be a property of some sort. A home equity loan or a second mortgage would fall into this kind of category. The thing of value is known often as a “security.”

According to the law, if you take out a secure loan, you’re entitled to better conditions than if you take out an unsecured loan. That will likely be a lower interest rate, or it may be longer payback terms, or some combination of both of these.

A secured loan often requires appraisal fees, which can get expensive in some areas. Depending on how much you’re borrowing, the appraisal fee may not be worth the loan. On the other hand, if you’re borrowing a large sum of money, the appraisal fee may be relatively small in comparison.

You may also be required to carry insurance on the security, as well. If you take out a home equity personal loan, it’s likely you’ll be required to carry homeowners insurance. Chances are good you already do, but if not you’ll probably have to buy it.

Unsecured loans

An unsecured loan takes the risk away from your property. You don’t provide anything of value as collateral for the loan. This, of course, increases the risk to your lender. Given that, the lender will ask for compensation for that risk. This compensation comes in the form of a higher interest rate or a quicker payback term.

The requirements for unsecured personal loans are stiffer. The lender will take a close look at your credit report, your employment status and your financial history. While you’ll likely go through the same process with a secured loan, lenders have higher standards when it comes to unsecured personal loans.

No matter what kind of personal loan you opt for, make sure you have all the facts. Get the terms from the lender, and do some comparison shopping. Unless you’re in a tremendous hurry due to an emergency, it’s almost always worth waiting a few extra days to make the right decision.

Personal Loans

One of the ways you can get money is with a personal loan. A personal loan is really a broad category that covers just about any type of loan that isn’t a home loan or a car loan. A personal loan can be used to pay off bills, to build an addition on your house, to pay for a wedding, or to send your child to college.

Personal loans fall into one of two types. There are secured personal loans and unsecured personal loans. Secured personal loans are loans that have some form or another of a “security” – collateral that the borrower provides as backing for the loan.

When you say “personal loan,” however, most people think of an unsecured personal loan. Sometimes called a “signature loan,” an unsecured personal loan doesn’t require the use of any collateral. You’re borrowing money on your own name, and the lender creates terms that coincide with the risk involved.

Terms and interest rates on a secured personal loan are usually much better than terms and rates on an unsecured personal loan. Because of the security involved, the lender doesn’t have as much risk with a secured personal loan.

Home Equity Loans

One type of secured personal loan is the home equity loan. This may take the form of a lump sum loan payout, or it may take the form of a line of credit, often known as a “Home Equity Line of Credit.” You can then use the money from the lump sum or the line of credit for whatever purpose you wish.

Home equity loans are typically only for a fraction of the equity in your home. If you have stellar credit, however, some lenders are actually willing to loan up to and sometimes beyond your current equity in your home.

Some home equity loans, like some other personal loans, may come with some agreement between you and the lender as to how the money can be spent. For example, a home improvement loan requires you to spend the funds making improvements to your home rather than consolidating credit card bills.

Which is Better?

The type of loan you choose depends on a number of factors, not the least of which is the options you qualify for. You may want to consider an unsecured personal loan if you don’t want to put your house on the line. On the other hand, you might choose a home equity loan just based on the sheer fact that you’re going to have much better loan terms and a much lower interest rate on top of it all.