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Difference Between Equity Loans vs Line of Credit Loans

There are so many different types of loans to choose from, how do you know what loan you should even apply for? If financial aren’t your thing, then maybe you should seek the advice of someone who specializes in loans or even ask for assistance from a family member who does like numbers. Applying for a loan is a process that can be time consuming, so you don’t want to waste any more of your time than necessary. Doing it on the paperwork for the wrong type of loan would be frustrating! Getting the right information on a loan the first time is the best bet for you.

Loan Types

Are there a few repairs you would like to do on the house before winter arrives? Do those repairs cost a bit more money than what you want to take out of the checkbook to cover? When that is the case, then you might want to get an equity loan to cover the expense. An equity loan is also about the same thing as a line of credit loan. Both can be used towards upgrades and fixes to your home. Generic lines of credit loans can be used on any type of purchase or if you want to consolidate smaller loans from somewhere else.

How the loan works is that the mortgage you have is refinanced and you pull off some of the equity that you have built up in the home. For instance, if you have $10,000 built up in equity, then you would be able to borrow a portion of that amount in order to fix your house. The equity is subtracted from your mortgage and then you refinance in order to reflect the money taken out.

Line of credit loans can also work the same way, but they can also work differently. You can put up other items you have equity in in order to get the line of credit. Do you have a business? A second home? Vehicles that are in a collection and worth money? You can put them up as equity against a loan and get a portion of the value in a loan to you. You will still need to pay a percentage of interest as you repay this type of loan.

No matter what type of loan you get, you will need to repay the money back with a fee. The fee comes in the form of interest. Shop around and find the lender with the best equity loan rates before you commit to any one company. The rates are what make the loan payments expensive, so choose your lender carefully. Also, make sure the term amounts fit your needs and the total payment is manageable in your monthly budget. A payment that is not affordable to you will not work because you might end up defaulting on it and then your credit will be wrecked. Bad credit makes getting a loan way more difficult in the future.

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