Spotting The Difference Between A Homeowner & A Personal Loan
If you are thinking of submitting a loan application, it is very important that you completely understand everything connected with a loan in order to make an informed decision.
For home owners with good credit there are several loans that will be available to them, but in this case we'll be looking at what's the difference between a homeowner loan and a personal loan.
Homeowner loans are regarded as secured loans, because the lender doesn't take a big risk. Instead of just borrowing money according to your credit profile you exchange the equity you have in your home for money.
Assuming you've lived in a house for 15 years and you have paid about 75% of the mortgage, then you own 75% of equity. Homeowners can then make a loan on that paid equity, which they have to repay. If payments cannot be made the equity is handed over to the lender.
A personal loan doesn't involve any security, although it helps to have a life insurance policy or another kind of investment in order to get approved more quickly. The lender takes into consideration your credit score and your complete financial situation. If you qualify you will be offered a certain amount of money which has to be paid back over an agreed period of time.
Due to the security of a homeowner loan you are more likely to get approval. The lender won't be too focused on your financial situation, seeing as they still get something even if the payments aren't made. This also helps to get you a bigger offer.
The lack of security when it comes to a personal loan means that it will be harder to get approval. Unless you have several investments and a perfect credit record it's going to be tough to get a substantial amount. Personal loans are usually the better choice if only a small amount of money is necessary.
Both loans have their share of advantages and disadvantages. For example, the homeowner loan is easier to get, but the risk is much higher. With the personal loan it won't be easy to get approved, but you won't lose equity in your house if payments can't be made every month.
It's recommended that you think carefully about your situation,