Beginners’ guide to loans

In today’s world, understanding what types of loans are available in simple to understand terms is critical in today’s more volatile market. Here is a quick guide to some common types of loan products. Remember to use resources such as S.C.O.R.E and the SBA to get good free info on some of these loan products before buying. Education is very important if you do not want to get ripped off.

Home Equity loan: A home equity loan or HELOC as its commonly referred is money that you borrow from the value of your home. If you purchased your home 2 years ago for $100,000 and now it’s worth $117,000, then you have $17,000 of “equity” or value built up in that home. A bank will lend you the $17,000 knowing that they can get it back when the house sells.

This is good for long term investments such as college tuition or remodeling. Some people use these types of loans to go on vacation and buy a car. Be careful with these types of purchases because you will be paying long term interest on items that do not provide long term value.

Small Business loan: These are loans that can be used for most business expenses when either starting or expanding a business. You can use these types of loan to purchase real estate or house your business, obtain inventory, construction and many other things. There are several types of loans available including Micro loans (usually $5,000-$35,000) and SBA loans which have more flexibility and are guaranteed by the government.

Banks will look at your personal credit, business plan, education, and the feasibility of the business you are starting or expanding in order to see what type of loan to give you. Tip: There are several free courses available on these types of loans from the SBA. Get educated!

Student Loans: If you want to get an education to increase your skills, but don’t have the money to pay for the classes, a student loan could be right for you. They are low interest loans from the government. These type of loans help pay for living expenses and study costs while at the university. Make sure when getting a student loan that the return on your investment (the increased amount of dollars you can make with the added education) is more than the total cost of the loan. This is one of the most common mistakes that students make.

Payday loan: You need to be very careful with these types of loans. Basically, let’s say that you don’t have enough money to pay the bills this month, so you go to a payday loan company and they tell you that they will lend you $100-$500 to cover your expenses. You agree to pay the loan back in two weeks with your next paycheck. These companies can charge up to 400% interest on these loans! This is a last ditch, desperate type of move. Beg money from your in-laws before seeking out this avenue.

Bad Credit Loan: As the name implies, if you have bad credit, most banks will not give you the time of day, never mind a loan. Companies that deal in high credit loans will loan up to $15,000 in several cases to people who have bad credit. These loans will almost always carry significantly higher interest rates. Shop around very carefully as predatory lenders love these types of loans.