Are You Better off with a Personal Loan or a Home Equity Loan

There are many types of loans a person can turn to for help in home repairs and upkeep or for an unexpected emergency with finances. No one can predict and plan exactly for the future — that’s why various individuals and financial institutions make loans available. When you decide it’s time to apply for a loan to help ease your own financial burdens, or perhaps to help a longstanding dream come true, be sure to do your homework first. According to lending institution LoanStar, “Know what you’re getting into and what your obligations are when you take out a loan such as a home equity loan or a personal loan.”

Just what is a personal loan?

Becoming more and more popular, a personal loan is most often unsecured — that means that you don’t have to offer up any kind of assets in order to qualify for it. This means you can get your loan money almost immediately and all of it upfront without too much hassle or paperwork. The payments are fixed and irrevocable from the start. That’s why these types of loans are growing in popularity. Research shows that a personal loan often has a higher interest rate than a standard car or home loan, but one that is much less than for a standard credit card.

A standard personal loan will be between a thousand dollars up to around one hundred thousand, depending on your credit history and your credit score — the better these indicator are, the more money is made available for you to borrow. Fixed rates can run anywhere from twelve to sixty months — again, depending on the amount borrowed and the borrower’s credit history and credit score.

Personal loans are most often used for clearing up high interest financial obligations that are sucking a person dry — such as a credit card debt with a very high interest rate. These kinds of debts leave a person feeling both victimized and hopeless — just keeping up on interest payments is often enough to force them closer and closer to personal bankruptcy. And so a personal loan, used for debt consolidation, is a very smart move for most debtors — it gives them some breathing space and motivation to keep making payments in a timely manner.

And just what is a home equity loan?

Home equity is the difference that occurs from the amount your home is worth as compared to your current mortgage obligation. When you ask for a home equity loan, what you’re doing in effect is using that home equity as a sort of collateral for the amount of the loan.

Because a home equity loan is based upon the value of your property, it is considered a secure loan — some financial institutions, such as a bank, also call them a second mortgage. There is quite a bit of paperwork involved in a home equity loan — it’s basically all the same paperwork and documentation required as when you got your first mortgage. That includes a new appraisal, even if you had one done only a year or two previously. If this is the way you want to go, be sure to check thoroughly into closing costs and the variety of semi-hidden fees submitting this kind of application involves. Shop around at several different banks/credit unions to see who offers the lowest fees and rates.

Melissa Thompson writes about a wide range of topics, revealing interesting things we didn’t know before. She is a freelance USA Today producer, and a Technorati contributor.