Getting the right type of loan is important in today’s borrowing environment.
- Many people are falling behind on their bills due to the skyrocketing cost of living.
- If you need to borrow money, choosing the right loan products is important.
It’s no secret that inflation is wreaking havoc on households across the country. And it can hit those living paycheck to paycheck with no savings money exceptionally hard.
Unfortunately, we could live for many more months with an exorbitant cost of living. And if you’re struggling to meet your expenses, you may be resigned to having to borrow money to avoid falling behind on your bills.
But you don’t just want to take out an old loan. On the contrary, at present there are two loan products in particular that are a safer bet than others.
It pays to prioritize personal loans and home equity loans
A personal loan is an unsecured loan that allows you to borrow money for any purpose. A home equity loan, on the other hand, is a loan secured by your home itself and can also be used for any purpose.
Both loans can be fairly easy to get if you’re a strong prospective borrower – for example, if you have good credit and no red flags on your credit report. And if you have a lot of equity in your home, it may be especially easy for you to get approved to borrow on it.
When you take out a personal loan or a home equity loan, you’ll usually get a much lower interest rate on the amount you borrow than what a credit card company would charge you. But there’s another reason these two loan products make so much sense right now: they come with fixed interest rates.
Other borrowing products, such as credit cards and HELOCs (home equity lines of credit), have variable interest rates. This means that your monthly payments could increase over time.
Right now, it’s especially important to sign a fixed-rate loan because the Federal Reserve has been raising interest rates all year, and it’s likely to continue to do so in an effort to slow the pace of the economy. ‘inflation. This means it’s a dangerous time to owe money under a variable rate product like a credit card or HELOC. But if you lock in a personal loan or home equity loan now, you’ll have the stability of knowing what payments you need to make throughout your repayment period.
Should we favor a personal loan over a mortgage or vice versa?
If you have the option of borrowing through a personal loan or a home equity loan, your best bet is to compare the interest rates and closing costs of the two products and see which one ends up being the better deal. Keep in mind that because personal loans aren’t secured by a specific asset (like a house), these lenders assume some risk. And so you may end up with higher interest on a personal loan than on a home equity loan.
But at the end of the day, it’s a good idea to shop around and get all the facts before making your choice. This will put you in the best position to borrow in the most affordable way possible.
The Ascent’s Best Personal Loans for 2022
Our team of independent experts have pored over the fine print to find the select personal loans that offer competitive rates and low fees. Start by reviewing The Ascent’s best personal loans for 2022.