Types Of Loans - Page 1

Within the broad categories of open-end, closed-end, secured, and unsecured credit, many types of loans exist, depending on your borrowing needs. Following is a rundown of the most common forms of credit, with tips to help you snare the best deal in each.

Credit Card Loans

Credit card issues by banks, savings and loans, credit unions, airlines, retail stores, oil companies, brokerage firms, and other financial institutions as sign you a preset credit limit. You can charge any amount up to that limit, either to purchase merchandise or to obtain a cash advance. Most credit cards offer a grace period that allows you to avoid paying interest on your purchases.

The majority of credit companies charge a fixed-interest rate that the companies adjust upward or downward over time. Most credit cards collect an annual fee; however, many no longer levy such a charge. If your credit cards carry hefty balances on which you pay interest every month, opt for the cards charging the lowest interest you can qualify for. If you tend to pay off your balance in full every month, obtain a card with no annual fee and a slightly high interest, which will not affect you.

Home Equity Loans

If you have accumulated equity in your home, you might take out a home equity loan to pay off other installment loans. First, home equity interest is generally fully deductible up to $100,000 on your federal and state income tax. Because they are secured, home equity loans charge a much lower interest rate than do unsecured credit cards. Many banks offer introductory rate below the prime rate for six months to a year. Hence, you can utilize this benefit to save you some interest while you save on the interest by paying your other debt with a home equity loan.

However, if the prime rate rises sharply, your interest cost also increase. Most home equity lines offer a periodic cap, usually the maximum your rate can jump in one year, as well as a lifetime cap, the highest your rate can ever climb. These provide some, but not too much, protection against soaring rate because lifetime caps are usually very high, often 15 percent to 20 percent. Lenders will typically provide a credit line up to about 80 to 85 percent of the appraised value of your home minus the balance mortgage your owe.

While a home equity loan can save your thousands of dollars in interest costs, you place your home on the line. If you are consistently late with your payments or miss payments and end up defaulting, the lender will repossess your house. Therefore, don’t take on a home equity loan lightly.

Installment Loans

You may across purchase with installment scheme offered by many merchandizes for ease of purchase by their consumers. This loan is called installment loan. It may be used to purchase furniture, home appliances, cars, boats, computer, or any other major item. When considering an installment loan, compare the items and rates available from the product’s manufacturer or the retailer selling the product against a loan from a local bank, credit union, or savings and loan. Often, such a lender offers better rates than the manufacturer or retailer, particular if you already have an account with that lender.

Life Insurance Loans

Your life insurance policy will build up cash value overtime, you can only withdraw this cash upon surrender of your insurance policy or when your policy is matured. If you did not withdraw the cash value from your insurance policy, it will be passed over to your beneficial later. But, you can get loan from your life insurance policy. Insurance company will lend cash up to the full face value of your policy at an interest from as little as 5% to as much as 15%.

Your loan against your insurance policy will affect the value of your insurance policy in various ways. First, your death benefit is automatically reduced by the amount you borrow. Second, some companies also lower the return they credit you on your cash value by the amount of your loan. Therefore, the cash value remaining in your policy might grow more slowly than if you hadn’t borrowed.

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