Understanding which option is right for you
At one time or another, we all need to borrow. It may be to make home repairs, to buy a car, or simply to consolidate high-interest debt. Many borrowers are finding the credit solution they need right at their fingertips – with credit cards. Credit cards offer the convenience to borrow any time for any purpose. Because they are revolving lines of credit, you can borrow and pay back funds over and over again.
The downside of using a credit card is that often the fees are much higher than with a traditional loan. In addition, credit cards do not offer the benefit of tax savings, and the rates are variable and may rise.
Before purchasing anything with a credit card, it is important that you pay careful attention to the terms of the card. Look at the annual percentage rate (APR) to discover the interest rate applied to purchases. If you are considering consolidating debt with a credit card, make sure there is a low fixed rate on balance transfers before consolidating funds.
A smarter alternative might be to obtain a loan from a financial institution. You can choose from a range of borrowing solutions, including the following:
- Home equity loans and lines of credit. If you own a home and owe less than the home is worth, you have “equity” against which you may be able to borrow. A home equity line of credit is a revolving loan account, like a credit card. It lets you borrow and repay funds over and again, up to a predetermined maximum. Like a credit card, the rate with a home equity line is variable and subject to change. The main difference between a home equity line and a credit card is that when you borrow with a home equity line, your house is collateral for the loan. A home equity line of credit is ideal if you want ongoing access to funds over time.
If you have equity in your home and want to borrow a lump sum of money once, you may want to consider a home equity loan. Home equity loans offer the potential tax benefits of home equity lines of credit and also use your house as collateral. The main differences are that the interest rate is fixed and will not change for the term of your loan, and you get the money all at once.
If you qualify and can live with using your home to guarantee repayment, you can take advantage of other benefits that make home equity a smart way to borrow, including the following:
- Interest you pay may be tax deductible (consult your tax advisor)
- Minimal fees, points, or closing costs
- The ability to borrow for any purpose
- Easy access to your funds
- Other types of loans. In addition to home equity and credit cards, financial institutions offer personal loans and home improvement loans. Both allow you to borrow funds for specific purposes – and to obtain a lump sum, at a fixed rate, for a fixed term. The type of loan that will work for you depends on your specific reason for borrowing.
At UCCU any of our Member Service Representatives are more than be happy to sit down with you to help determine the solution that best fits your needs. Visit them at any of our eighteen convenient branches.
Please consult your tax advisor. Loss of dwelling may occur if your mortgage loan is in default.