Need advice on getting a small loan....

[VaKim]

I was going to ask this on Facebook, but remembered that this place has a much greater supply of knowledge than Facebook does, lol.

 

DH and I are having an addition put on our house. My mom is giving me part of my inheritance early to pay for the biggest part of it, but we still need from 5000 to 10,000 dollars more to make up the difference. We have never had any loans other than car loans and the contract to buy our house from my parents years ago, so I don't know a thing about them. 

 

What would be the best kind of loan to get with the lowest interest rate? Any suggestions as to places, b&m or online, to try? Also, can anyone recommend a safe online place to find out. I googled and came up with a couple places (like this one) where you put in your info and they send back some suggestions, but I don't trust them. 

 

We do have excellent credit, if that matters.

[ktgrok]

Where do you bank? Your bank, or even better, credit union, would be where I'd start. 

[Carol in Cal.]

I have a friend who is a mortgage broker, and when I needed a HELOC she suggested that I'd get a better deal from my credit union than I would from her.  So I'd start there.  Also, I'd get a LOC for more than you think you will need, because it seems like contractors always uncover problems that were unanticipated and charge you more to fix them.

[Robin M]

Easiest would be a home equity line of credit. Still some hoops to jump through but not quite as many as a 2nd and interest rates are lower than personal loans. Try your bank first. We are in the process now but still jumping through hoops since we are also going after a sba loan at the same time for business property purchase.

[Guest]

It's a good idea to get a line of credit established, anyway.  Not that you ever have to use it, but if you neeeeeed it, that is precisely when you can't get it.  

 

Ask me how I know.  :0/

 

(We're OK...it was a timing issue.)

 

Everyone should have a LOC established.  

[ktgrok]

It's a good idea to get a line of credit established, anyway.  Not that you ever have to use it, but if you neeeeeed it, that is precisely when you can't get it.  

 

Ask me how I know.  :0/

 

(We're OK...it was a timing issue.)

 

Everyone should have a LOC established.  

 

Well, everyone who actually has equity, which isn't the large number it used to be thanks to the housing crisis we had. Many people in Florida are still underwater on their loans. 

[zoobie]

Well, everyone who actually has equity, which isn't the large number it used to be thanks to the housing crisis we had. Many people in Florida are still underwater on their loans.

HELOCs are based on home equity. You can have a LOC based on your own credit or other assets.

[Guest]

HELOCs are based on home equity. You can have a LOC based on your own credit or other assets.

 

But whatever the kind, get one before you don't have an income (retired).  Because no matter how much you have in assets, equity and whatever, you can't get a LOC without income.  

 

Ours was a timing issue.  We needed cash for something; assets were tied up.  No income.  

 

And....no LOC available. 

 

Like I said, it worked out.  But if I had it to do over, I would get a LOC established before retirement.  And one not based on home equity.

[SparklyUnicorn]

We borrowed for our roof.  We got the best rate at a local credit union.  We couldn't borrow on equity.  As far as I know that is often the best option.  So we got a personal unsecured loan.

 

 

[VaKim]

Ok, for those who recommend a LOC, what are the benefits of that as opposed to just a personal loan? Not sure why we would need that, but then, I don't really know a lot about any of this stuff. 

[StephanieZ]

Ok, for those who recommend a LOC, what are the benefits of that as opposed to just a personal loan? Not sure why we would need that, but then, I don't really know a lot about any of this stuff. 

 

A Line of Credit is generally open ended, so you can borrow more later, up to a point.

 

For instance, we have a 200k HELOC on our house. (As others have mentioned, I believe it is wise to have lots of credit available, just in case, and we have a lot of equity, so we took a big one, even though we didn't need it at this time. It really is a nice security blanket. )

 

Our HELOC has a 10 year "draw period", during which we can borrow more or pay down all of it or whatever. Sort of like a credit card, but cheaper rates, deductible interest, etc. During the draw period, we only have to pay minimum payments. At the end of the 10 years, you have to either "re-qualify" for the HELOC -- meaning your credit/income/etc needs to get you the loan again. OR, if you don't want to (or can't) re-qualify, then the outstanding balance converts to an amortized payment over 10-20 years. I forget which (as it was not relevant to our finances.) So, your minimum monthly payments would go up.

 

Our HELOC, like most, is tied to current interest rates, so less than 3%. But they are (all?) variable, so you don't really want to borrow a huge $$ for an indefinite period of time, IMHO.

 

A regular LOC works similarly to a HELOC, but it isn't backed by your home. Down side is you can't deduct the interest on your taxes. Up side is they can't (generally) take your house if you default. IME, LOC would have higher interest than a HELOC, and also require stronger personal financials. The people I've known who've used these sorts of LOCs are small business people with large cash flow variability. I know my mom's (small) law firm had one, because sometimes they'd have clients paying 100k at a time, but running up bills for months/years at times. So, having a LOC to cover a gap between payments was useful in their early years, before they had big cash reserves (and more financially mature partners who could fairly easily forego personal income for a month or two here or there as needed). 

 

A LOC (not HELOC) pretty much is a "personal loan" but it has a more flexible terms (draw period, repayment terms) than a personal loan. A personal loan would typically be for a finite period, like a car loan. Say, a personal loan = borrow 5k today, pay it back in 5 years at x% interest in monthly payments. Whereas a LOC is more like the "credit card" thing.

 

Personally, if I were you, I'd talk to your banker wherever you bank. Talk options. For that small a loan, you might not want to bother with a HELOC (as for that, you'll need an appraisal, etc.) BUT, HELOCs usually are hard-sold by your bank, and they generally will pay ALL Those closing costs for you. Our bank did for ours. We paid nada closing costs, not even the appraisal. (Compare to a refi where you pay all your own costs . . .) BUT, 5-10k is way too little for them to want to sell it to you and cover their 1k or more in closing costs . . . so you would probably want to be vague and act like you plan to draw more like 25k to make it worth their while. They might even require you to have an initial draw of $x (ours did, 25k), but you can repay it the next day, no cost to you, lol.

 

Alternately, I'd look at just getting a car loan against any vehicles you have that are worth enough. Your bank can do that, too. Cheap loans, 5-ish year repayment should be plenty for your 5-10k home improvement cost. 

 

Or, you can just get a credit card and pay vendor(s) with it for the 5-10k.

 

Hope these ideas are helpful.