Personal Loans

The financial industry has an entire suite of lending options to meet your every borrowing need - for a price, of course

Unless you've been living under a rock for the last 50 years, you're probably familiar with that spoof of the song from Snow White and the Seven Dwarfs: "I owe, I owe, so off to work I go." Numbers from the U.S. Bureau of Labor Statistics tend to agree with this slogan: they show that nearly three-quarters of all American adults owe money of some kind to the financial industry, and they're able to make monthly interest payments on this debt thanks to - you guessed it - their jobs.

Lending institutions know that many of us are in the market for borrowing money for a whole host of reasons - some sensible, and some not so much - and therefore offer a variety of services to meet our personal loan needs.

These can include:

  • Home loans. Despite skyrocketing prices and a meltdown of the sub-prime mortgage industry, the real estate market is continuing to grow. A mortgage is still about the cheapest money you can borrow.
  • Car Loans. Statistics show that fewer Americans are buying new and used vehicles outright.
  • Lines of credit. These are often offered to a bank's customers of choice.
  • Small business loans. If you're looking to start a home-based business, you definitely need one of these.
  • Student Loans. These are offered both through the federal government and through privately controlled banks.
  • Payday Loans. Just about the worst kind of borrowing you can do. Stay away from these barely legal outfits if you can.

Most personal loans are unsecured loans. This means that they are not secured by collateral. Therefore, whether you can secure a personal loan and how much interest you'll pay will depend solely on your credit score. Every American is allowed to access their credit score from each of the three U.S. credit bureaus: Equifax, TransUnion and Experian. Credit scores range from 350 to 850 and are based on your past borrowing history.

Mortgages or car loans, on the other hand, are examples of secured loans: the house (or car) is put up as collateral. If the borrower should default on the loan, the lender can recover their losses by seizing and selling the collateral assets. Since this type of loan carries less risk for the lender, it is usually easier to be approved for a secured loan, and interest rates tend to be much lower.

Before taking on a personal loan of any kind, it's best to review your overall financial strategy to see if the loan makes sense. You should ask yourself: is this borrowed money a good investment in my future financial health? A mortgage or a student loan would definitely fall into that category, as would money borrowed to make strategic home improvements. Borrowing money to pay for a depreciating or non-practical consumer product makes less sense, as does borrowing money to take the vacation of a lifetime. These purchases are better made with money you already have rather than with borrowed funds.

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