Borrowing Money? What Loan is Best for You?

Most people need to borrow money at some point. Americans owe more than $13 trillion in total debt. Borrowing is clearly an expensive proposition for many American families.

If you do find yourself borrowing to buy a home, a car, an education, or anything else, it is important to look at the pros and cons. It’s all about making the right long-term decisions and minimizing out-of-pocket costs. Let’s look at what you need to know to best evaluate loan options available to Americans today.

Common Types of Loans

Loans come in many names and forms. When looking at consumer loans (loans to people and not businesses) there are four main categories: mortgages, student loans, personal loans and auto loans.

While these are the most common ways to borrow, there are some substitutes for traditional loans to use instead. Those include credit cards, lines of credit, home equity lines of credit and borrowing from yourself with a 401(k) loan.

Not all loans are created equal. It is important to understand some of the similarities and differences between the various types of loans and alternatives.

What All Loans Have in Common

All loans and borrowing products have a few features in common. Here are a few of the most important places to look:

Interest Rate

The first place to look with any loan is the interest rate. This is the main way you pay for borrowed funds. Depending on the type of borrowing, rates can be single-digit percentages or hundreds of percentage points for the worst short-term loans.

Fees

Common fees with loans include origination fees, late and returned payment fees, annual fees and early payoff fees. Fewer and lower fees are better.

Minimum Payment

Every loan requires you to pay it back somehow. Depending on the type and duration of the loan, your minimum payment will vary.

Payment Schedule

The vast majority of loans require monthly payments, but some allow you to pay more frequently or require a different schedule.

Lender 

Is the company you plan to borrow from an upstanding, trustworthy company? Only work with licensed, reputable lenders.

Features of Popular Loans

Here is a brief summary of each of the major types of borrowing, including traditional loans and other lending products.

Mortgages

Mortgage loans are a type of loan where you borrow to buy a property, most often a single family home or condo. The most popular type of mortgage is a 30-year fixed loan, where you pay the same payment and interest rate for the next 30 years or until the loan is paid off. 

Student Loans

Student loans are one of the fastest growing categories of borrowing. From banks and nonbank lenders, student loans help pay for the cost of a college or university education. Some loans are backed by the U.S. government, which means lower rates and better terms than private student loans.

Personal Loans 

A personal loan is an unsecured loan. The best personal loans these days often come from credit unions and online lenders. Payday loans fall into this category. You should avoid this type of predatory loan if at all possible. Payday loans typically charge high interest rates.

Auto Loans

Car loans are similar to a mortgage, except secured by the car instead of a home. When a loan is secured, it means the bank can take (foreclose) the asset if you stop paying. Most car loans are around two to seven years long with a fixed monthly payment

Credit Cards

Credit cards are a form of unsecured loan, and they often charge interest rates from around 7 percent for the best cards and borrowers up to 30 percent for the worst cards. Beware credit card debt. It is a lot easier to spend than it is to pay it back.

Lines of Credit

A line of credit can come in several forms. One popular form is as a personal loan, or an unsecured loan. Lines of credit are revolving accounts, which means you can add to the balance and pay it off again and again over the life of the account.

Home Equity Lines of Credit 

A Home Equity Line of Credit, or HELOC, is a secured line of credit. It is a hybrid of a personal line of credit and a mortgage. Because a HELOC is secured by your home, it gets a better interest rate than nearly anything else other than a mortgage. But you can spend on it like a credit card.

401(k) Loan

A 401(k) loan should be a very last resort. Taking from your 401(k) means borrowing from your retirement, and if you don’t pay it back you get hit with a handful of fees and penalties. Avoid this type of loan if at all possible.

This is not an exhaustive list of every type of loan. Many others exist that fall within these categories, and there are some less common and customized loans available in real estate, business, construction, and other areas.

Go Into Lending With Your Eyes Wide Open

Some finance experts suggest there are good debts and bad debts. Good debts arguably include a mortgage, which get you a home, and student loans, which get you an education. However, not all student loans or mortgages are good or affordable.

When it comes to cars, credit cards, and anything else, it’s best to avoid borrowing if you can’t afford to easily pay it off in full from savings. If you pay off your credit cards in full before the due date, you never have to pay interest. This is where valuable rewards cards come in. Savvy spenders buy with cards and pay them off to get rewards but avoid the costs.

Even with “good debt,” borrowing has costs. Avoid borrowing when you can. But if you do need to take out a loan, make sure you get the right loan with the most favorable terms for your needs.

 

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Top 12 Questions (and Answers) About Life Insurance

Even the most calm and collected person can become confused by the prospect of getting life insurance. 

So many of us know we need life insurance, but we also feel we don’t understand it enough to make the best decision. Good thing at SelectQuote we know when it comes to investing your money in ANY kind of purchase, the only stupid question, as the saying sort of goes, is the one you didn’t ask.

There’s a funny thing about so-called dumb questions—a lot of people have them.

And with that, here you can find answers to some of the questions you have about life insurance but don’t feel comfortable asking out loud.

Do I Need Life Insurance?

If anyone depends on you bringing in money in order to survive, you need life insurance. It’s a great comfort to know your loved ones will have much-needed money in the event of your death.

Even if you’re single, with no dependents, you may still need coverage:

Did someone co-sign a loan for you? In the event of your death, that co-signer will be responsible for your remaining debt.

Might your health change? If you have a family history of life-threatening disease, it’ll be cheaper to get insurance now than when you’re older.

Are you planning on a funeral? It’s an unpleasant situation to think of but a policy that at least covers your funeral and burial cists can take a lot of pressure off surviving relatives.

What Kind of Life Insurance do I Need?

There are two basic types of life insurance:

Term life insurance covers you for a specified period of time.

Permanent life insurance covers you for your whole life, which is why you’ll also hear it referred to as “whole life” insurance.

As time goes by, financial responsibilities tend to lessen (kids grow up and get jobs, your mortgage gets paid off) there’s less of a need to carry a large insurance policy beyond a certain point in life. Most likely, the best bet for you will be term life insurance that covers your dependents during your income-producing years.  

What About Permanent Life Insurance?

The biggest reason why most people avoid permanent life insurance is the cost. It’s more expensive than a term life policy. It also doesn’t make sense for most people. Unless there are special circumstances, there’s limited need in most families for a large life insurance payout in the insured persons later years. Permanent life insurance tends to be most useful for people who expect to leave a large estate and whose beneficiaries might need the money to help ease the tax burden on that estate. 

Should I Take the Coverage My Employer Offers?

Absolutely. It’s probably a good deal and your premiums will be automatically deducted from your paycheck. Keep in mind any employer coverage you have will end if your employment ends. We’re not suggesting you’d quit your job without a game plan or get yourself fired, but we do live in a world where workforces sometimes get reduced and corporate mergers result in layoffs. It’s a good idea to have private insurance in addition to any coverage that comes with your job.

Where Do I Start to Buy Life Insurance?

Here’s a little something we know quite a lot about at SelectQuote. It’s our job to help you find the right insurance plan for you and your family. Talk with one of our licensed agents and we’ll get you the information you need to make the best choice. 

How Much Life Insurance Coverage Should I Get?

There are various recommendations to estimate how much coverage you need, but nothing compares to a careful analysis of your financial situation and exactly what you might count on a life insurance payment to do for your beneficiaries. That means only you can answer this question, but it doesn’t mean you can’t get some help. Our agents are here to help answer your questions and get you the coverage you need. 

Check out our online life insurance calculator. It also helps if you know what an insurance company takes into account when calculating a quote.  (Here’s a clue: Pretty much everything!)

What Information Will I Need to Provide?

Every company has its own application process, but common information that most will look for includes your height, weight, date of birth (DOB), some answers to health-related and lifestyle questions and an overview of your financial situation.

So, I Need to Answer Questions and Give Some Information?

Sort of. When it comes to specific health-related questions, your insurance company will most likely help you out by requiring a medical exam. Some companies will arrange for a qualified healthcare professional to come to you. Among the basics covered by such exams: medical history, current medications, family medical history, blood pressure, heart rate, basic heart function (determined by stethoscope), height/weight check, blood/urine samples, lifestyle questions.

What Kind of “Lifestyle” Questions Will I be Asked?

Before agreeing to insure you at a particular rate, your insurance carrier will want to know if you have any habits or engage in any activities that could be harmful to your health. Some questions to expect: Do you smoke? Do you drink? How much do you drink? Do you use recreational drugs? Do you have any hobbies that involve physical risks?

What if I am Not Completely Honest on a Few Questions?

That’s a really bad idea. A company can only insure you based on the quality of the information it has to go on; if you don’t give honest answers, odds are you won’t get a policy that truly meets your needs. To use a stronger word—lying on your life insurance application company can also result in a policy being denied or cancelled once the lie is found out. And if a serious omission of truth is discovered after you die, there’s a possibility your beneficiaries won’t receive the payout you set out to provide for them in the first place.

Who Gets All This Information?

The information you provide and the results of your medical exam are given to someone called an underwriter. The underwriter’s job is to assess all of that information and decided how much of a risk the company will be taking by insuring you. Those are the basics, but you can learn more, if you’d like.

Will I Ever Need to Change Life Insurance Coverage?

Life changes. New dependents may arrive on the scene (e.g., children or elderly parents) current dependents may go out of your life, (e.g., divorced spouses or no-longer-dependent children). It’s good idea to review all of your insurance, life insurance included, at least every three years, to be sure your needs are being met and your beneficiary choices are in order.

You can get as in-depth as you want to in learning about life insurance. However much research you do, one of the most important pieces is to decide exactly what you want your beneficiaries to be able to do should you die and to then find the most straightforward policy for accomplishing that goal.

Here’s wishing you all the best in finding the right life insurance for you so you and your family have peace of mind for the long run.