Can't Pay Your Bills Due to Inflation? This Could Be the Best Way to Borrow - The Motley Fool

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by Maurie Backman | Published on July 27, 2022
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It's important to take out the right type of loan in today's borrowing environment.
Check out The Ascent's best personal loans for 2022
It's hardly a secret that inflation is wreaking havoc on households across the country. And it may be hitting those living paycheck to paycheck without money in savings exceptionally hard.
Unfortunately, we could be in for many more months of sky-high living costs. And if you're struggling to keep up with your expenses, you may be resigned to having to borrow money to avoid falling behind on your bills.
But you don't just want to take out any old loan. Rather, right now, there are two loan products in particular that are a safer bet than others.
A personal loan is an unsecured loan that allows you to borrow money for any purpose. A home equity loan, meanwhile, is a loan that's secured by your home itself and can also be used for any purpose.
Both loans can be fairly easy to qualify for if you're a strong borrowing candidate — say, if you have great credit and no red flags on your credit report. And if you have a lot of equity in your home, you might have an especially easy time getting approved to borrow against it.
When you take out a personal loan or home equity loan, you'll generally snag a much lower interest rate on the sum you borrow than what a credit card company would charge you. But there's another reason these two loan products make a lot of sense right now: They come with fixed interest rates.
Other borrowing products, like credit cards and HELOCs (home equity lines of credit), come with variable interest rates. That means your monthly payments could climb over time.
Right now, it's especially important to sign a fixed rate loan, because the Federal Reserve has been raising interest rates all year, and it will likely continue to do so in an effort to slow the pace of inflation. What that means is that it's a dangerous time to owe money under a variable rate product like a credit card or HELOC. But if you lock in a personal loan or home equity loan now, you'll get the stability of knowing what payments you're in for throughout your repayment period.
If you have the option to borrow via a personal loan or a home equity loan, your best bet is to compare interest rates and closing costs on both products and see which one ends up being the better deal. Keep in mind that because personal loans are not secured by a specific asset (like a home), those lenders take on a certain amount of risk. And so you may end up with a higher interest on a personal loan than with a home equity loan.
But ultimately, it's a good idea to shop around and get all the facts before making your choice. That will put you in the best position to borrow in the most affordable manner possible.
Our team of independent experts pored over the fine print to find the select personal loans that offer competitive rates and low fees. Get started by reviewing The Ascent's best personal loans for 2022.
Maurie Backman writes about current events affecting small businesses for The Ascent and The Motley Fool.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
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