Differences Between Finance Loans and Home Equity Loans
If you are looking for a finance loan or a home equity loan, they are actually two very different types of loans. We will do our best to explain below the differences as simply as possible. Or at least to provide you with some information to see if either type of credit warrants further investigation.
A finance loan is typically used when you purchase a product such as a car, RV or motorcycle, for examples. A finance loan is normally made when there is a title involved. Some dealers have their own in-house lending if it is a new vehicle. Used dealers may have their own funds also that they lend or have a relationship with a finance company that buys their paper. If the dealer has a relationship with a finance company, the qualifications are usually set up beforehand so the sales representative knows what the finance company needs up front.
Sometimes, a finance loan can be used to purchase appliances or TV’s and such. There is either a credit card option issued by the store for financing or they may have in-house finance or also use the services of a related finance company. The interest rates will be slightly higher than banks or credit unions but not too awfully high for a loan paid over a fixed term. You will find however that the term is not usually long. 36 months is the norm up to a maximum of 48 months. The credit criteria is close to what a bank would look at. There is a big difference however. The retailer will get some sort of commission and therefore make money on these finance agreements, so with finance loans if you are on the borderline of their credit criteria, they will usually approve you.
A home equity loan is a very different product. This is where you borrow against your home’s equity for whatever reason you wish. The loans are usually a pretty decent rate and can be repaid over a longer period of time which can be less than those credit card payments or maybe even a car loan. If you are looking to add a new recreational toy to your household, this may be a cheaper way for you to purchase. A home equity loan is worth investigating. You can even borrow more than the value of your property, with 125% secured loans for example. But these are more risky so you shouldn’t enter into such an agreement lightly.
So there you have the differences between finance loans and home equity loans, which hopefully provides you with some insight.
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