August 1, 2022
Tagged As: Personal
Most people who pay for big expenses– such as a car, house, or tuition – cover the cost with some sort of loan. But many don’t know that there are different kinds of loans and lines of credit that can apply in different situations (and which come with different requirements). Learn what kind of loan can help with your financial needs below!
How Do Loans Work?
When you’re taking out an amount of money for a loan, you’re using credit. Before approving you for a loan, lenders will look at your credit score and history to make sure you have the ability to pay it back. A higher credit score and a history of timely payments will result in better loan terms for you, such as a lower interest rate. Therefore, it’s a good idea to ensure your credit score is as good as it can be before applying for a loan.
Once you apply for a loan and your lender has evaluated your credit, they’ll make you an offer. The offer terms will depend on your credit score, the type of loan you’re applying for, and the standard “prime rate” that affects the interest rates of all accredited loans in the U.S.
All that said, here are some of the loans that you might consider to help you achieve your financial goals.
For most people, a mortgage loan is the biggest loan they’ll take out over their lifetime. Unless you have hundreds of thousands of dollars in cash, you’ll probably need to secure a mortgage loan to buy a house. These loans typically come in multi-year installments – such as 10, 15, or 30 years – and come with a number of unique requirements compared to other loans.
For example, if the down payment on your home using a conventional mortgage is less than 20% of the purchase price, lenders may require something called private mortgage insurance (PMI): a premium added to your monthly mortgage payment.
Want to buy a house, but aren’t sure you have enough for a down payment? Down payment assistance programs can help.
Home Equity Loans or Home Equity Lines of Credit (HELOC)
Also known as a “second mortgage,” home equity loans and home equity lines of credit (HELOC) use the share of your home mortgage loan that you have paid down (your equity in the home) as collateral to secure funding.
Often the first loan that a person takes out in their lives, student loans can help make getting an education possible. Many student loans are administered by the federal government, which can come with certain benefits. For example, federal student loan repayments can be deferred – meaning you don’t have to make payments for a certain period of time. During the COVID-19 pandemic, federal student loan borrower’s loans were deferred for over two years.
Students can also obtain loans through private financial institutions or non-profit organizations. At Hills Bank, we’ve partnered with ISL Education Lending to offer lower-cost student loans to students.
Purchasing a car can be easier when you can pay for it over the course of several years, which is the term of most auto loans. One thing many people don’t know is that you can apply for an auto loan even if you haven’t found the car you want yet.
Personal Loans and Lines of Credit
Personal loans and personal lines of credit can fall under a broad umbrella. People use personal loans to finance personal projects, remodel their home, cover unplanned expenses, consolidate debt, or buy vehicles like RVs and boats.
Personal lines of credit, on the other hand, work similarly to a credit card in that they are ongoing for a given period of time. You only borrow the amount that you need (up to your credit limit), rather than a fixed amount.
Are you interested in a personal loan or line of credit? Ask a banker to learn more about the right option for you.
Technically speaking, credit cards are a kind of revolving loan using credit rather than a fixed amount of cash given to you by a financial institution. And like any loan, it’s important to understand the terms of a credit card so you can make the most out of the purchasing power it provides.
Business & Ag Loans
Beyond loans for personal use, many aspiring business owners take out loans to fund their start-ups.
Have questions about loans? Our bankers are here to help. Just use the chat button below to connect with our staff during business hours, or give us a call at 1-800-445-5725 (1-800-HILLSBK).