One can't just go out and get a loan like that. Before you do something that can't be undone, you should think about a lot of things. You have to keep in mind that once you sign that contract, or after the usual three-day grace period, there is no going back. If you can't pay back your loan, there will be bad things that will happen.
In general, there are two types of loans: those with collateral and those without. Most of the time, collateral is used to get a secured loan. This type of loan is much easier to get, especially for people with a bad credit history and a low credit score. Secured loans have much lower interest rates than unsecured loans because there is already a tangible asset that can be taken if the loan isn't paid back.
But if you can't pay back the loan, the lender will take your property. On the other hand, people with good credit histories and high credit scores usually get unsecured loans. So, it makes sense to get a loan that is backed by something.
But it's not enough to just choose between a secured loan and an unsecured loan; there are other things to think about as well.
Even if the interest rate is one of the most important factors in making a decision, you shouldn't let bad advertising make you miss it. Low interest rates could make you want to take out a loan, but you might not save money because the loan could last longer. If the interest rate seems fair for the length of the loan, go ahead and sign the papers.
Loan Term: Most loans have set terms of 15, 20, 25, or 30 years, at most. Some lenders will let you change the term if they think you can pay off the whole debt in half the time. But be ready to pay fees and penalties if you pay off the loan early. Ask your bank if you can pay them off sooner or later, and how that will affect your interest rate and your monthly payments.
Hidden Fees: Read through the whole contract before you sign it. There may be fees you don't know about, especially with home equity loans. Make a list of all the possible extra fees and fines you may have to pay.
Rates that change or stay the same: If you took out a loan with a fixed rate, you know exactly how much you will have to pay each month. Most likely, your parents' first mortgage was a fixed-rate loan, because that was the only option at the time. As time went on, new things came along, like the adjustable rate mortgage.
Some people call this a "flexible" or "adjustable" loan because the interest rates change every year or every three months, depending on the terms of the loan. If you're lucky, the market's low interest rates could save you a lot of money on interest.
