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Personal loans and home equity loans – How do they differ from one another?

There are different types of loans available in the market. You will have to choose the loan option which will suit you the best. Two most popular types of loan options available in the market are the personal loans and the home equity loans. Personal loans are unsecured loans available to almost everyone. It does not require any kind of collateral. On the other hand, home equity loans are secured and the equity in the property is considered as the collateral for the loan.

Personal loans – What are they are what are the benefits?

Personal loans are an easy way to get a loan for any purpose. People can take out personal loans to meet any financial emergency, medical needs, buying household items, go for a vacation, etc. When you apply for the loan, the lender may not ask you the purpose of the loan. You can apply for loans for bad credit online or you can take help of banks and financial institutions to get this loan. Moreover, these loans will be available to you within a few hours of loan application.

Personal loans are available at a very high interest rate. This makes the loan costly and at times difficult to pay off. It should also be noted that if you default on the loan payments, then additional fees and charges are attached to the loan which makes the loan further costly and unaffordable. Thus, you should be careful enough while taking out this loan.

While giving out the loan, the lender may not check your credit and financial situation. Rather he will give out the loan on the basis of the trust that you will pay back the loan. If you cannot pay off the loan, the unsecured loans lender will charge off the loan and assign it to a collection agency that will in turn harass you for the payments. Non-payment of a personal loan will have severe negative impact on your credit situation.

Home equity loans – What are they and what are the benefits?

Home equity loans are secured home loans which are available to people who have equity in their property. Also, they should have a good credit score and stable income in order to get the loan. The lender will check your financial situation and verify your income from your employer before providing you with the loan. You can contact the local banks and financial institutions in order to get the loan. However, of late, even online lenders are offering home equity loans.

The lender will check your credit score before giving you the loan as it will let the lender know about your creditworthiness. It will be better if you have a credit score of 700 or more. The higher your credit, the greater chance you have to qualify for the loan. Moreover, you may not get a home equity loan quickly. The document verification process can take quite a lot of time after which the lender will let you know whether or not you will get the loan.

Now that you know about both the loans, especially how they differ, in details, you will be able to decide which option to go for easily.

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