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Personal lending 101: What loan is right for you?

By Published On: August 26, 20225.5 min read

UMB Bank n.a.  | 

August 26, 2022  | 

Reading Time: 5 minutes

Personal lending 101: What loan is right for you?

Life can be unpredictable. That’s why it’s important to understand the personal loans and lending options that can help you finance the unexpected and plan for the road ahead.

So, what personal loan is right for you? Here are a variety of options that can be used to help finance whatever life throws your way.

Personal loans

Whether you want to pay down debt, consolidate debt, cover unexpected expenses or make a purchase, a personal loan can be the tool that helps you achieve your goals.

Personal loans may be a lower-rate alternative to credit cards and a simpler application process than other lending solutions. The interest rate of the loan depends on a variety of factors including your credit score, debt-to-income ratio, the amount of the loan and more. Additionally, you may be able to secure smaller loans without collateral if you meet the loan requirements.

Mortgage loans

Are you planning to purchase a home or looking to refinance your current home? There are a variety of mortgage loan options depending on your financial needs:

  • Conventional mortgage: Conventional home loans are available through two government sponsored enterprises—Fannie Mae and Freddie Mac. Conventional loans can now be closed with as little as 3% down payment. But note that private mortgage insurance would apply for down payments less than 20%. Conventional mortgages are the most common financing requested for purchasing a home.
  • Federal Housing Administration (FHA) home loans: FHA home loans are guaranteed by the federal government. These home loans are designed for borrowers who don’t have the funds to meet the down payment requirements of a conventional mortgage. FHA loans also have more flexible qualification requirements, which make them attractive to those who may not qualify for conventional mortgages. One caveat for FHA loans is they do have some limitations and restrictions on your home purchase – from dollar amount to specific features of the home.
  • Veterans Affairs (VA) home loans: VA loans are mortgage loans guaranteed by the Department of Veterans Affairs. VA loans offer long-term financing to eligible American veterans or their surviving spouses who meet certain qualifications.
  • Jumbo mortgages: A jumbo mortgage loan has a loan amount that exceeds conventional loan parameters and is designed to accommodate higher-value homes of more than $647,000.
  • United States Department of Agriculture (USDA) home loans: The Rural Housing Service (RHS) is an administrative division within the U.S. Department of Agriculture (USDA) that manages loan programs focusing on rural housing for lenders to offer to their communities. USDA loans assist low-income borrowers in rural areas and guarantees loans that meet RHS requirements.

Home equity loans and home equity lines of credit (HELOC)

If you already own a house, you can put your home value to work with home equity financing. By taking advantage of your home’s equity, you can cover the costs of home improvements, purchase or refinance a vehicle, pay for large expenses or consolidate your debt.

The first thing to understand about home equity is the different ways you can use your home to deliver a cash injection – the two primary ones are a home equity line of credit (HELOC) and a home equity loan, which is often called a second mortgage.

So, how do you know which is right for you? A HELOC is a reusable line of credit where your home serves as collateral with either adjustable or fixed rates. With this financing option you spend what you need. Monthly payment amounts can vary depending on how much of your HELOC you use and the interest rate. A HELOC is ideal for ongoing expenses like building your dream kitchen or making home repairs.

A home equity loan is a lump-sum loan where your home serves as collateral. These loans have a fixed rate, consistent monthly payment amounts and you’ll receive the total amount at loan closing. This loan is usually used for making large, one-time purchases or remodeling your home.

Buying a home is one of the largest purchases a person will make in their life and the loan application process can seem like an intimidating task. However, there are many resources available like a Mortgage Loan Checklist to help you gather the necessary documents and move smoothly through the application process.

Vehicle loans

Buying a car is a big decision and it’s important that you feel confident in your purchase. A personal auto loan finance process starts with a review of your financial situation and lending needs. Your lender will be there to guide you every step of the way during the purchase with a dealership or private seller.

If you’re looking to refinance a car, reach out to your banker to review your vehicle lending options. An updated personal vehicle or auto loan term may lower your current monthly payment amount, and you may be able to take advantage of a lower rate. Some people may not know that vehicle loans can include more than just a car. Many lenders offer financing for recreational vehicles from boats and motor homes, to motorcycles and ATVs.

Beware of high-risk loans

If you need money fast and know you may have difficulty securing a loan due to factors like low credit scores or a high debt-to-income ratio, it can be tempting to work with direct lenders that offer easy-to-secure loans quickly. However, financing options like payday loans, buy-now-pay-later and title loans often have extremely high interest rates and fees.

While these options may seem like a quick fix, they often create even more financial strain for borrowers. In fact, according to Credit Summit, only 14% of payday loan borrowers can pay back their loans.

There are a wide variety of financing options that can meet your personal lending needs. For a closer look at how each option can impact your finances, UMB’s calculators can help you address common financial challenges including mortgage refinancing, car payments, debt consolidation and more.

UMB personal banking solutions offer convenience and simplicity to meet all of your past, present and future financial needs. From home loans to auto financing and everything in between, see how UMB personal banking can work with you to find the right products for your life and lifestyle.

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By |2024-01-29T12:42:35-06:00August 26, 2022|Categories: Personal|Tags: , , , , |

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