What are loans, and how do they work? These are the first questions you might be asking yourself if you’re considering borrowing money. Keep reading to learn about these questions, plus:

1. What are loans?
2. What is interest?
3. What’s the difference between a loan and a line of credit?
4. How can you use a loan to consolidate debt?
5. What’s the difference between interest rate and APR?
6. Types of loans

What are Loans?

Loans offer competitive interest rates with a predictable monthly payment. You must submit an application and receive approval from a lender to get a loan. Then, after you are approved, you’ll receive a lump sum of money based on the amount you’ve been approved to borrow. You’ll then repay the loan with interest in equal monthly installments for the length of the loan.

What is Interest?

How does paying interest work? This is the cost of taking out a loan. Personal loans typically have a fixed and simple interest rate on the principal of the loan. You can calculate how much interest you’ll be paying over time by multiplying your loan principal by your annual interest rate and by the number of tears it’ll take to pay off the loan. Paying interest is part of your monthly payment. 

What’s the Difference Between a Loan and a Line of Credit?

A loan is an amount of money that you borrow from a lender for a specific length of time. A line of credit, on the other hand, is a borrowing limit extended to you. This means that funds are available to you up to a pre-assigned credit limit, and you’ll have the ability to reuse your line of credit as you repay. Your monthly payment will be based on the amount of the line you have outstanding. 

How Can You Use a Loan to Consolidate Debt?

A personal loan is a great option to consolidate multiple debts into a single monthly payment. First off, identify all debts that you’d like to consolidate. Then, apply for the total sum or more. Once you’re approved, you can use your personal loan funds to pay off your higher interest debts and consolidate them into one loan with a single monthly payment. This is typically at a lower rate than multiple debts might be. 

What’s the Difference Between Interest Rate and APR?

The interest rate is the cost to borrow money from your line of credit. The Annual Percentage Rate (or APR) adds in some of the costs of getting the line of credit in addition to the interest. This includes lender fees.

Types of Loans

Credit Builder Loans

So, what is a credit builder loan? At Telco Credit Union, we want you to have a chance to get a loan, no matter your financial history. This type of loan will allow you to earn interest on money that you’ve put on hold. This encourages saving, which leads to better financial habits in the long run. If you don’t have any credit yet, don’t worry! This loan opportunity was made for you. Credit builder loans help members with no credit to establish credit. If you’re a member with us, choosing a credit builder loan will establish trust and honesty with us at Telco.

Home Equity Loans

So, what exactly is a home equity loan? A home equity loan is a type of loan that is secured by your home. You repay the loan with equal monthly payments over a fixed term, much like your original home mortgage. If you don’t repay the loan as you agreed, your lender can foreclose on your home. Home equity financing can be set up as either a loan or a line of credit. With a home equity loan, the lender offers the total loan amount upfront. On the other hand, a home equity credit line provides a source of funds that you can draw on as you need.

If you’re considering a home equity loan or credit line, make sure to look around and compare offers by banks, credit unions, savings and loans, and mortgage companies. You can get a better deal this way. Keep in mind that mortgage brokers don’t lend money, but they help arrange loans. Also remember that your home secures the amount that you borrow. So, if you don’t pay your debt, you may be forced to sell your home to satisfy that debt.

Auto Loans

When it comes to buying an automobile, there are many things to consider. First, it’s important to shop for your loan. Shopping for a loan before you buy a car will save you time, stress, and perhaps most importantly, money. Consider how much you can afford to pay monthly and how much you can afford to put down as an initial down payment.

Next, consider if you want or need a co-signer on your loan. A co-signer is another person who is required by law to pay back a loan after co-signing one. A co-signer is obligated to pay back a loan even though he or she does not own the vehicle. If you have a low credit score, or if you don’t have a credit score at all, a co-signer with good credit could drastically decrease the interest rate on your loan. The decision to have a co-signer is an important one; make sure to discuss this in detail with your potential co-signer. Late and/or missed loan payments affect your credit record and your co-signer’s credit record as well.

If you’re trading in a car, think about how much your trade-in may be worth. It is important to research the value of your current vehicle; some helpful resources to do so are Kelley Blue Book, NADA Guides, and Consumer Reports. Once you get a good idea of the worth of your current car, you should settle on either trading it or selling it on your own. Whether you trade or sell your current vehicle, make sure that you are getting a fair deal.

Telco Credit Union

Proudly serving Tarboro, Rocky Mount, Greenville, and surrounding North Carolina areas, Telco Credit Union is a full service non-for-profit financial institution. We offer many services and products, including savings and checking accounts, loans, mortgages, and much more. We’re here to help with all your financial needs.

When it comes to your finances, we want to provide you with the experiences you’re looking for. If you live or work in Tarboro, Rocky Mount, Greenville, or surrounding areas in North Carolina, check out Telco Credit Union and consider becoming a member.