Home Equity Loans Vs. Personal Loans for Debt Consolidation
When it comes to paying down high-interest debt, borrowers have many loans from which to choose. Two of the most popular are home equity loans and personal loans. Both loans are available at Spirit Financial. The primary difference between a personal loan and a home equity loan is simple. Personal loans don't typically require any collateral, while home equity loans do. Let’s learn a bit more about the differences between home equity loans and personal loans.
Personal Loans for Debt Consolidation
When taking a personal loan, you are borrowing a lump sum of cash that can be used for just about anything, including debt consolidation. Personal loan interest rates are often lower than high-interest credit card rates, making them a great option for consolidating high-interest credit card debt or even high-interest medical debt. Personal loans typically come in terms of up to five years and offer a fixed rate of interest. That interest rate will remain fixed for the life of the loan. This ensures the stability of a fixed monthly payment that you can count on throughout the term of the loan. Because you are not using any collateral for your personal loan, the lowest interest rate is dependent on an excellent credit score.
Home Equity Loans for Debt Consolidation
Home equity loans are based on the equity a borrower has in their home. The more equity you have built in your home, the more you will be able to borrow. This may mean you are eligible to borrow a higher amount than you would with a personal loan. Similar to a personal loan, you will be borrowing a lump sum of money for a fixed period of time. Although, you may be eligible to borrow for a much longer term than a personal loan, depending on the lender. This may make it a good option for borrowers trying to pay off a higher amount of debt. Here’s another one of the pros of a home equity loan. Because a home is used as collateral for the loan, home equity loans usually have a low fixed interest rate. The collateral makes them less of a risk to the lender and an attractive choice for a borrower looking to consolidate high-interest debt. While your credit score is still important when borrowing a home equity loan, a lender will also take into consideration your collateral.
Comparing loans for debt consolidation
While there are benefits and risks to any loan, for those borrowers who are responsible and committed to making their monthly payments on time, a home equity loan may offer the lowest interest rates and flexible terms. This can equal lower monthly payments and significant interest saved over time. If you are not a homeowner, don’t have enough equity in your home, or are uncomfortable using your home as collateral, then a personal loan may be a better option for you. A personal loan can also be a savings option if the rate is lower than your existing debt and you pay off your loan in a timely fashion. When comparing loans for debt consolidation, always take fees and any other loan costs into consideration. Your local credit union is always the best choice for the most competitive rates and lowest fees. If you’re looking for a way to combat the high interest payments of multiple debt that you can’t seem to keep up with, a debt consolidation loan may be the answer to help you get your finances back on track. Have questions about which type of loan would be best for your debt consolidation needs? Speak to a Spirit Financial Credit Union representative today.