December 06, 2001
By: Bev Dodd
Consumer loan: Choose what's best for you
A consumer loan includes home equity, automobile, and personal loans. Consumer loans, also known as personal loans, are used to finance a variety of purchases, almost all major acquisitions except the purchase of a home. You may apply for a consumer loan, for example to pay for a stove, a car, a boat, new clothes, a vacation or any addition to your home. We'll discuss this more below.
If you have a consumer loan (auto, boat, installment, credit card, etc.), the interest you pay typically is not deductible on your income tax return. Depending on your situation, interest on a home equity loan may be fully deductible under the current law. (Individual circumstances may vary; consult your tax advisor regarding deductibility of interest and charges.)
Rather than a consumer loan, you may find a home equity loan is a better option. Lower Interest Rates: In general home equity loans charge lower interest rates than most credit cards and other personal loans. More Cash Availability: The amount you can borrow using your home as collateral is generally greater than other types of personal loans. More Flexible Repayment Terms: Home equity loans have varying repayment periods that can be tailored to keep payment amounts within your budget. Most home equity loans require a minimum periodic payment, but larger payments can be made to reduce your interest costs.
Bills have a way of slowly creeping up on you. Before you know it, you're making monthly payments to credit cards, department stores, the hardware store and many other places. It's a hassle to worry about getting all those bills paid on time. Instead of a consumer loan, shop for a home equity line; look for a plan that best meets your particular needs. Look carefully at the credit agreement and examine the terms and conditions of various plans, including the annual percentage rates (APR) and the costs you will pay to establish the plan. Many of those costs will be similar to the ones you pay when buying a home.
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