Financing Life’s Big Events
Tips on taking out loans for special events in life
Significant life events are happening all the time — your daughter is getting married, your son is heading off to college, you finally decided to retire and you're planning that vacation of a lifetime. These are joyous occasions, so being stressed about how to fund them shouldn't be overshadowing your experiences and your memories. Here are some tips on how to obtain a loan for these special events to help put your mind at ease.
There are a variety of loans available to help pay for big events. One of the most likely might be a personal loan, but other options include a home equity loan or line of credit. Using the equity in your home can be a great way to fund that special occasion while also keeping your financing under control. You can access your home equity in three different ways:
- By applying for a home equity line of credit (HELOC). This allows the borrower to have access to a revolving line of credit that is determined based on the amount of equity in your home. You will likely receive special checks that access only your line of credit
- By applying for a home equity loan. This is also known as a second mortgage, and it allows the borrower to obtain a second mortgage loan based on the equity in the home. The borrower receives the funds in one lump sum, and payments for the loan begin immediately after the funds are received.
- By applying for a refinance on your home. To avoid having two mortgage payments (as you would with a home equity loan), refinancing your home might be a more affordable way to go, depending on the funds you need. Refinancing means that you refinance the original mortgage using your home's appraised value, which will pay off the existing mortgage and provide the borrower with any additional funds left over.
Personal loans can be more difficult to obtain, because they're not secured by collateral like a home equity loan would be, but if you don't own your own home, a personal loan might be an easier way to go. Before you apply for a personal loan with your financial institution, take the following steps to increase your chances of successfully getting a larger sum:
- Check your credit score. Financial institutions will be less likely to grant personal loans to those who have poor credit. According to Shauna Zamarripa of eHow Money, "[C]redit-worthy individuals usually have a 7-year history of paying credit cards on time with no late payments or delinquent accounts. In addition, credit-worthy individuals do not have negative items reported on their credit in the form of collection accounts or charged-off accounts due to non-payment."
- Make a list of your assets that could potentially be secured as collateral if you were to default on your loan. Some acceptable forms of collateral include home equity, cars and money in the bank. The value of your assets should either match or exceed the amount you are planning to borrow. It is never recommended that you borrow more than you can pay.
Before you sign on the dotted line, however, it's important to ensure you receive the best loan for your financial needs, regardless of the type. Shop around for the lowest annual percentage rate (APR); the APR tells the true cost of the loan because it takes into account the interest you will accrue over the term of that loan. Read any fine print to make sure you are eligible and to check for any special conditions. Also, ask about repayment charges; some institutions might penalize you for paying off your loan early.
Finally, don't apply for too many loans. Only you know what you are financially capable of taking on.