A loan is borrowed money with an agreement to repay it with interest within a certain amount of time. If you were considering taking out a loan, your immediate thought might be to go to your local bank. However, you might want to explore some other options first.
Inexpensive Loans: Parents or other family members are often the source of the least expensive loans—loans with no or low interest. They may charge only the interest they would have earned on the money if they had deposited it in a savings account. They may even give you a loan without interest. Be aware, however, that loans can complicate family relationships.
Medium Priced Loans: Often you can obtain medium-priced loans; loans with moderate interest from commercial banks, savings and loan associations.
Expensive Loans: The easiest loans to obtain are also the most expensive. Finance companies and retails stores that lend to consumers will frequently charge high interest rates, ranging from 12-25%. Banks also lend money to their credit card holders through cash advances; loans that are billed to the customer’s credit card account. Most cards charge higher interest for a cash advance and charge interest from the day the cash advance is made. As a result, it is much more expensive to take out a cash advance than to charge a purchase to a credit card.
Home Equity Loans: A home equity loan is a loan based on your home equity; the difference between the current market value of your home and the amount you still owe on the mortgage. Use these loans only for major items such as education, home improvements, or medical bills. If you miss payments on a home equity loan, the lender can take your home.