Which Loan is Best?

Which Loan is Best?

This exercise gives you an opportunity to practice identifying the type of loan best suited for particular items. Read the description of the purchase to be made. The types of loans include: consumer installment loan, credit card, or home loan (purchase, refinance, or equity).

 

Which type or types of loans would be best to finance a college education?

Answer: Consumer installment or home loans. Homeowners often use home equity or home refinance loans to finance college education. People who do not own homes can get consumer installment loans.

Some people use credit cards to pay for tuition, but that usually costs more than installment or home loans.

 

Which type or types of loans would be best to make small purchases in a department store, such as a $50 household appliance?

Answer: Credit card.

Which type or types of loans would be best to make home improvements?

Answer: Home loans or consumer installment loans. Homeowners often use home equity loans or refinance their mortgage to pay for home improvements. But some may use consumer installment loans.

 

If you are not a homeowner, which type or types of loans would be best to consolidate two or more loans?

Answer: Consumer installment or home loans. Homeowners often use home equity or refinance loans to consolidate debts. People who do not own homes often use consumer loans.

 

You should be careful of consolidation loans and make sure you are getting a better deal than your old loans. Some dishonest lenders may trick you into signing up to consolidate bills with a loan that costs more than the old loan. This can leave you paying more in interest and loan origination fees.

 

Which type or types of loans would be best to buy a major appliance, such as a $500 refrigerator?

Answer: Credit card.