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May 01, 2006
Choosing the Right Type of Credit for Your Needs
The type of loan you choose will depend on:
The purpose of the loan will have an effect on which type of loan you choose. If you're financing the purchase of a car, an instalment loan may be your best bet. If, on the other hand, you need access to an ongoing source of credit to use for investment purposes, a PLC may be just the ticket.
Where interest rates are and where they are going also have an impact on the loan you choose. If rates are rising and you choose a variable-rate instalment loan, a demand loan or a PLC/HELC, then the interest you pay will rise too. However, if you choose a fixed-rate instalment loan, you can lock in the current rate for the term chosen. Of course, the opposite is true in periods when interest rates are falling. Then you may wish a loan with a fluctuating rate of interest so you can pay less interest as rates fall.
Also consider how the loan repayment amount affects your overall cash flow. If you want a loan that charges interest only so you can minimize the impact on your cash flow, a demand loan may be the answer. If you want a loan that allows you to make minimum payments, a PLC/HELC can do just that for you. If you are looking for a guaranteed, fixed payment amount for the full term so you can budget accurately, a fixed-rate instalment loan is the answer. If you need an option that lets you make your repayments more often than once a month (i.e., weekly, bi-weekly or semi-monthly) to fit in with how often you are paid, an instalment loan likely meets that need.
Whether or not you qualify is also part of the decision-making. For example, while most instalment and demand loans have no minimum household-income requirements, many financial institutions require that you have a minimum household income of $50,000 a year to qualify for a PLC.
As you can see, there is a wide range of options from which to choose if you need to borrow money. Knowing what you want is the first step. The second step is being flexible so that you can take advantage of any advice offered by the lender. Remember, you're in this together. You need the money to meet your immediate needs. The lender wants to be sure you'll repay the loan in full and on time. Working together, you can both achieve your objectives.
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