Most of us need a loan from time to time. According to the Federal Reserve, about 40 percent of American households do not have the cash to cover a $400 emergency expense. When such a mini-crisis hits, they must borrow from friends or relatives, pay the expense in installments, ignore the emergency, or get a bank loan. Many times, options A, B, and C are unavailable for some reason. That leaves just option D.

Most families have a number of choices when it comes to a short-term bank loan. In fact, there are often so many choices that it’s hard to select the best one. In these situations, try using a resource like Sites like this one have lots of information in a format that’s very easy to use.

If you expect repayment to take longer than a few months, the type of interest rate may be the most important consideration in the process.

How It Works

Some loans have a variable interest rate that changes as prime rates go up or down. Pay close attention to the loan agreement. Many times, there is a limit as to how many times the rate can change or how much it can change at once. Typically, the rate is tied to either the prime lending rate set by the U.S. government or the prevailing T-bill rate.

As the name implies, for fixed rate loans, the interest rate remains the same for the entire repayment period. Market events are irrelevant.

Variable Interest Rate Loans

Flexible interest rates got a very bad reputation in the early 2000s. Largely as a result of various scandals, these loans were associated with predatory lending practices. There is no doubt that some unscrupulous providers used “promotional rates” and other gimmicks to entice borrowers into loans they could not really afford to repay.

But especially for short-term loans, variable rates may be a good idea. If the repayment period will not last more than a few months, there may be little chance for the interest rate to increase substantially. Be sure you keep an eye on the Federal Reserve’s activities and other developments that could affect interest rates. If there are no storm clouds on the horizon, your rate should stay low for the entire repayment period.

Variable rate loans are also good for borrowers with poor credit. Because the borrower assumes more risk, the lender is sometimes willing to increase the loan amount.

Fixed Rate Loans

The main benefit of a fixed-rate loan is that the borrower knows exactly how much the monthly payment will be for the entire repayment period. That consistency is very good for many families. However, as a general rule, only people with good or average credit can obtain these kinds of loans. Furthermore, you may pay a higher rate initially.

When you need money, you have options. Since putting off the decision to borrow money usually only makes the financial crisis worse, reach out to a provider today and see how much you qualify to borrow.

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