The coronavirus crisis slamming our collective health, our lifestyle and our economy is a big wake-up call. If it’s throwing your finances into question, you are far from alone.
Maybe you or your partner face potential layoff, or your small business is facing a massive slump. Or, you just regret that you didn’t save more for an emergency expense, like a broken water heater.
But don’t throw up your (well-washed) hands! This is a good time to get an affordable loan, which can smooth over hard times, lower the cost of existing debt and make your life work better.
The trick is to secure the type of loan that best fits your needs and your credit standing at the best possible price and with the least risk. Read on to see which type of loan makes sense for you.
1. No-interest credit cards
If you have run up a balance on credit cards and you’re paying a high interest rate — current rates are running upward of 25% APR — that’s a cost that you can slash. One option is to apply for a credit card that charges 0% interest on balance transfers for an introductory period of time.
Cost: Occasionally, you can get a balance transfer card that does not charge a fee for the transfer. More typical, however, is a 3% or 5% fee on the balance moved over from the higher-interest card. So, if you transfer a $6,000 balance, the fee would be $180 at 3% or $300 at 5%.
Term: A 0% interest credit card is a short-term solution. The grace period is typically anywhere from six to 18 months, and occasionally as long as 21 months. After that, the interest rate will soar. So, make sure you have a plan in place to pay off the balance before the grace period ends.
Important note: Credit card companies are currently offering breaks on interest rates, collections and fees for customers facing financial hardship. Even if you aren’t looking to transfer balances, you can call your existing card company and most likely get them to lower your interest rate or waive fees on late payments.
2. Home equity lines of credit and loans
If you’re a homeowner — either outright or with some mortgage debt — then you likely are qualified for a loan based on how much equity you have in your home.
These loans can be a great way to cover something big, like a major remodeling job or an unexpected tax bill. You could also use one to consolidate high-interest credit card debt.
Traditionally, there were two basic products:
- Home equity line of credit (HELOC): A preapproved amount that you can draw on as needed, typically with a variable interest rate and payments that are based on the amount outstanding, similar to a credit card — but normally a lot cheaper
- Home equity loan: A lump sum with a fixed interest rate and monthly payments
These loans are readily available through banks and credit unions. But now there’s a service that allows you to get through the process in record time. Figure Technologies can help you get a home equity line of credit of $15,000 to $150,000 — at a fixed rate — in a matter of days.
Through a process that starts with a short two-screen form, you can get a quote, finalize paperwork and get funded entirely online without the weeks- or months-long process that has traditionally accompanied HELOCs and home equity loans. (I was pre-qualified for $98,000 in minutes.)
Cost: Interest rates on home equity loans and HELOCs are generally higher than mortgage rates but lower than rates for many other kinds of loans — in the 5% to 10% range at the moment.
Note that fees and interest on these loans may be tax-deductible, but be sure to check with your tax adviser about your loan product.
Term: You can get terms of five to 30 years with these loans.
Important: A HELOC or home equity loan is secured by your property. If you can’t make the payments on the loan, you could lose the house. So, be realistic about the payments you can make — and never use this or any other type of loan to live beyond your means.
3. Personal loans
If you are not a homeowner — prefer not to use your home as collateral — another option is a personal loan. Personal loans are pretty simple: You borrow a lump sum of money and then pay it back monthly over a set term, typically at a fixed interest rate. They can be used for just about anything — to make a large purchase, consolidate debt, finance a car and more.
Again, technology has made it easier and faster than ever to get these loans without ever visiting a bank. Check out these tools which allow you to search, compare loan offers and get funded within days:
- Credible: This free tool allows you to get personal loan quotes from multiple lenders in just minutes, and apply and get funds within days — in amounts of $1,000 to $100,000, depending on your credit history. The company gets paid by the lender when you finalize a loan, which does not affect your rate or fees.
- LendingTree: This well-regarded site operates in a similar way, allowing you to compare personal loan offerings from competing lenders — again, with terms based on the amount you need and your credit standing — with no fee or markup on the loan for using the service.
- Upstart: This company, founded by folks formerly at Google, also provides access to competitive loans. The founders say they can help find loans for people with short credit histories by factoring in such things as education level/earning potential and job history. (Nerdwallet offers a more detailed review here.)
- Upgrade: This online lender started in 2017 is geared toward people with poor to fair credit — to get access to affordable personal loans that will help them, but not get them in over their heads. It extends up to $50,000 in fixed-rate personal loans, with no prepayment fee. (NerdWallet gives this provider 4.5 out of 5 starts in its review.) Note that this lender does charge an origination fee.
- Prosper: Prosper offers fixed-rate personal loans through a peer-to-peer lending system that matches people who need loans with lenders. The lenders are investors looking to get a better return on their money than they could with a bank savings account, and borrowers may get a short-term loan at a lower cost than banks are offering.
- Lending Club: This peer-to-peer lender offers fixed-rate personal loans of up to $40,000, as well as small-business loans and car refinance loans.
Cost: Since personal loans typically are unsecured (meaning they require no collateral), they usually have somewhat higher interest rates than home equity loans. But rates are competitive, starting as low as 5% — though more commonly around 10% — and going up to about 36%, depending on amount, term and creditworthiness.
Term: Typically, five years or shorter
4. Credit unions
Credit unions typically offer more flexible lending options and lower interest rates than banks. There’s a simple reason for this, explains Money Talks News founder Stacy Johnson: Credit unions are not-for-profit.
“When you’re not trying to make a profit, you can pay more on your savings accounts and you can charge less on your loans. So, if you’re a customer of a credit union, you’re often going to find lower rates on loans and higher rates on savings. And since they’re smaller than the big boys, you might also find more personal service.”
For people with decent credit, credit unions will sometimes offer signature loans — that is, an unsecured loan guaranteed only by a signature.
Credit unions can also be a good bet for borrowers with less-than-stellar credit, according to Nerd Wallet:
“A low credit score alone won’t disqualify you from getting a loan. Credit unions also consider your whole financial picture, including your credit history and standing as a member with the credit union, when reviewing your loan application.”
Cost: Varies depending on credit and other factors
A home is for most of us the biggest purchase we ever make. So, the terms of the mortgage we use are critical — and can mean a difference of tens of thousands of dollars over the life of the loan.
That’s why we have many articles on Money Talks News that lay out how to get the best mortgage you can, and we offer a place in our Solutions Center to search for the best interest rates currently available.
Well before you start house hunting, check out “9 Tips for Getting the Best Deal on a Mortgage,” which will walk you through the entire process — all the way up to being preapproved for a mortgage based on your financial circumstances and credit.
Cost: The good news for homebuyers is that mortgage rates are relatively low, historically speaking — less than 4%, even for a 30-year fixed-rate mortgage, on average.
Term: Traditional mortgages typically have a 30-year term, but you can choose a shorter term, like a 15-year mortgage. With a shorter term, your monthly payment will be higher, but you will pay less in interest over the life of the loan.
If you’re looking at borrowing money and you don’t see the type of loan you’re looking at above, then at least make sure it’s not on our “bad loans” list before you move ahead. Check out “7 Terrible Ways to Borrow Money” so you know what to avoid.
Finally, if you’re deep in debt and need help managing it, check out our Solutions Center, which offers resources to help you consolidate and pay down debt, handle debt collectors and restore your credit.
What’s your experience with taking on debt? Share with us in comments below or on our Facebook page.