Finance

Beyond Home Equity as a Finance Source

In recent years, a home equity loan has been one of the hottest ways to finance everything from home improvements to school tuition, not to mention debt consolidation. But for those who don’t own a home or no longer have enough equity, a home equity loan isn’t an option. Fortunately, there are other options. One of the most flexible is an unsecured line of credit (ULOC), sometimes called a personal loan.

Secured Loans vs. Unsecured Lines of credit
Home equity loans are secured lines of credit, meaning that the borrower puts up collateral — in this case, a home — to back the loan. Because of this, the lender assumes less risk and can usually offer lower rates.

An unsecured line of credit, in contrast, doesn’t require collateral. Lenders make decisions based on the applicant’s creditworthiness. And while the interest rates can be higher than with secured loans, people with good credit typically get competitive rates.

Applying for a Loan
Because there is no collateral required with an unsecured line of credit, there is significantly less paperwork involved, and lower or no fees. Many lenders can approve applications right over the phone, then deposit the money directly into the customer’s account.

Loan vs. Line of Credit
A loan is generally taken in a lump sum, usually for a one-time expense. A line of credit can be accessed repeatedly, as long as you haven’t reached the credit limit. That makes it especially useful if you expect to have continuing needs, such as a long-term home improvement project. You don’t have to borrow — and pay interest on — funds you don’t intend to use right away.

Choose Your Product Carefully
The important thing to remember when selecting any financing option is to get all the facts. Be sure you understand the rates, fees, and payment terms up front. Then choose the product — secured or unsecured, loan or line of credit — that best meets both your needs and your budget. When chosen wisely, a loan can be a great way to help reach your financial goals.