Between the derecho that devastated Eastern Iowa last summer and the ongoing pandemic, many people could use some help getting back on track. A loan can be a good way to finance your needs, whether they be home repairs and renovations, a new car, or a short-term cash infusion.

But many of us have never taken out a loan before, or may have only signed up for student loans with the help of a parent. If you’re thinking of taking out a loan, here’s what you need to know.

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.

What Types of Loans Are Available?

Loans and credit cards are the types of credit most people use most often. Loans, which let you borrow a lump sum of money, have a longer history. But credit cards, which give you revolving access to a fixed amount of money, called your credit limit, have become a way of life for most people. Revolving access means that as soon as you repay an amount you've borrowed, you can use it again.

Though credit cards are a type of loan, they aren’t what we’ll be focusing on in this article. If you’d like to learn more about credit cards, click here.

What Kind of Loan Do I Need? 

The type of loan you need largely depends on whether you already own a home, are planning to buy a home or vehicle, or need cash for other projects. The difference comes down to secured vs unsecured loans.

Secured loans require collateral, which in most cases is the asset that you’re taking out a loan for (such as a house or car). In the event that a person defaults on the loan – or fails to repay the loan according to its terms – the lender can repossess the asset to recoup the money they lent out.

Unsecured loans, on the other hand, don’t require any asset to be used as collateral. However, lenders will often charge higher interest rates to compensate (credit cards are the most common type of unsecured loan).

At Hills Bank, we offer a few different kinds of loans to meet our customers’ needs, including:

• Auto Loans: Used to purchase a vehicle. Terms vary.
• Mortgage Loans: Used to secure the funds for purchasing a house, and typically repaid over a 15+ year period.

Learn more about mortgage loans here

• Home Equity or 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.

Learn more about home equity loans here

• Personal Loan: Used for any other cash needs that don’t fall into the categories above.

Learn more about personal and auto loans here

See our current rates for personal loans here

If you have any more questions about loans, feel free to get in touch with us! You can stop by one of our locations or get in touch with a banker.