If you are facing some unexpected expenses, you need to consolidate debt, or you have a major purchase in mind, a personal loan may just be what you need. Personal loans can put you in charge of your finances. Traditionally, personal loans have been bank loans, but before you go to the bank, here are some alternatives to consider.
Lines of Credit
A line of credit is a type of personal loan that is given in advance of the need. The amount is approved, but you do not have to use the money immediately, and interest is only charged when money is withdrawn. You do not have to pay a line of credit off for the life of the loan, but you usually have to make payments based on the interest rates and the amount being used.
Lines of credit are great for major purchases, consolidating debts, or to have cash available to take advantage of opportunities as they come up.
Zero Interest Credit Cards
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Many lenders offer credit cards with zero interest on balance transfers and often on new purchases. The zero-interest promotions only last 12 to 24 months, and after that, regular interest rates apply. However, there is typically a transfer charge on zero-interest credit cards, so you need to look at all the details before you sign up to transfer your debt to one.
Zero-interest credit cards are an excellent option for consolidating loans or major purchases when you know you can pay them off before the promotional period ends.
Home Equity Loans
If you have untapped equity in your home, taking out a home equity loan might be a good approach. Home equity loans are like the original financing on your home and require a similar application and qualification process. The amount you can borrow is based on how much you already owe and the value of your home. The combined amount of your mortgage and home equity loan usually cannot be more than 80 percent of the value of your home.
Home equity loans have the lowest interest rates and the longest repayment periods, but they tie up the equity of your home. They are best for home additions, landscaping, or purchases that will maintain their value over time.
Peer-to-peer lending is a new source of loans patterned after crowdsourcing. With peer-to-peer lending, you borrow money directly from individuals who crowdfund the loans via online sites. Peer-to-peer lending interest rates are lower than from banks, and everything is done online, making it simpler and quicker. Peer-to-peer loans generally range from one to three years in amounts up to $32,000.
These loans can be great if you are looking for a short-term loan for any purpose without the hassle of dealing with a bank.
Personal loans are a great way to get money when you need it, but before you go to a bank and fill out a loan application, explore these alternatives. They may save you time and money.