With an assortment of loans available, what’s the best option for your needs?
Media Contact: Barbara Fornasiero; EAFocus Communications; firstname.lastname@example.org; 248.260.8466
Wyandotte, Mich. — January 19, 2023 — As higher prices persist and consumers set purchasing goals for the new year, people are looking more closely at an additional cash source beyond their own income: loans. But what type of loan is right for your needs? It depends on the particular situation and the amount of money needed. Carma Peters, president and CEO of Michigan Legacy Credit Union, explains the variety of loans consumers may tap into to best meet their individualized needs.
“Loans can be an excellent option when someone needs cash for a home, education, or some other major purchase. But they can also make sense for shorter term needs if the interest rate and other terms are attractive. The goal is finding the right loan at the right rate in keeping with good financial decision-making,” Peters noted.
So, what types of loans are available, and what purpose do they serve?
- Signature Loan: Also known as a personal loan, a signature loan is one of the simplest loans to acquire. As its name states, procuring one is almost as easy as a signature, pending income and credit approval. These loans can be used for weddings and vacations, or other personal needs. “Plus, signature loans are often offered at promotional rates depending on the time of year,” Peters shared. A signature loan is considered an unsecured personal loan because no collateral, such as a home or automobile, is required by the lender to back or ‘secure’ the loan.
- Mortgage: A mortgage is often needed to purchase a home. “Back in the day, 20% down on a mortgage used to be the standard,” Peters noted. “While that’s not as common these days, it’s important not to bite off more than you can chew with a mortgage, as home ownership comes with multiple other costs in addition to the mortgage payment.”
- HELOC: A home equity line of credit (HELOC) provides a credit line you can continually access to borrow against your home. Peters advises that HELOCs are best for those who have to dip into the value of their home more than once.
- Home Equity Loan: Peters suggests a home equity loan when a homeowner is seeking a one-time lump sum of money, perhaps for a major house project. It’s important to note that neither a home equity loan nor a HELOC should be taken out if an individual plans to move soon.
- Automotive or Recreational Vehicle Loan: Looking for a fresh set of wheels, a new boat, motorcycle, or RV for summer road trips? Yes, credit unions have a loan for that, and you can often find a more competitive rate than what the dealer or a bank will offer. For borrowers with a less than stable credit history, it’s important to know that high interest lenders can charge as much as 28% interest, while the National Credit Union Association (NCUA) caps interest rates for all credit union loans at 18%.
- Credit cards: While not a typical loan, credit cards essentially are loans with more flexible terms, albeit at very high interest rates. “When it comes to credit cards, they’re a great option if you’re going to be able to pay them off immediately,” Peters notes. “However, if you’re going to need more time to pay off a big purchase, a signature loan will likely provide better interest rates.”
- Student Loan: Designed for those enrolled in a college, university or trade school to pay for tuition, student loans are available through the federal government or local credit unions and banks.
“There are a variety of loans for a reason – to meet a wide range of consumer needs,” Peters notes. “It’s important to pick the right loan so as not to ‘pay’ for more money than you need. An example of that would be so-called payday loans that charge high interest rates for money that needs to be repaid quickly. Consumers should always turn to their financial institution first for any lending needs to find the appropriate loan at the most secure and competitive interest rate.”
Peters adds that having a relationship with your financial institution is an advantage when selecting a loan.
“When you have a relationship with a bank or credit union that is focused on optimal customer services, you’ll find that staff are trained to understand which loan makes the most sense for a particular customer. Sometimes that means a loan type you were not considering is actually better suited to meet your financial needs,” Peters said.
About Michigan Legacy Credit Union
Michigan Legacy Credit Union (MLCU) is a member-owned, not-for-profit financial cooperative serving members who live, work, worship, attend school, or own a business in the state of Michigan. Michigan Legacy Credit Union is committed to providing quality financial services at a competitive price, delivered professionally and efficiently while keeping member/owners and their needs first. For additional information on MLCU, visit: www.michiganlegacycu.org.