There are many reasons borrowers may not want to take out a home equity loan, such as the hassle of going through the application process or the risk of losing their home if they can’t make payments. Fortunately, there are alternatives for borrowers who don’t have equity in their homes or don’t want to tap into their equity for a loan. Let’s look at four types of loans that don’t require borrowers to use their homes as collateral.

Life insurance Loans

Borrowers looking for an alternative to home equity loans may want to consider life insurance loans. If a borrower has a permanent life insurance policy, such as universal or whole life insurance, and they’ve built up cash value, they can borrow against this cash value and use the loan for any reason. For anyone wondering, is whole life insurance worth it? –  whole life could provide much-needed cash flow during a challenging time.

Personal loans

Another type of loan that doesn’t require home equity is a personal loan. Personal loans can be used for almost anything – from consolidating debt to funding a large purchase. However, personal loans also tend to have higher interest rates than home equity loans. Personal loans are unsecured, which means the borrower is not putting anything of value up as collateral. This can make personal loans a riskier proposition for lenders, and as a result, they often come with a shorter repayment period and higher interest rates.

Credit Cards

Credit cards may be a more attractive option than home equity loans for some borrowers. With a credit card, borrowers have the flexibility to make smaller payments over time or pay off the balance in full each month. In addition, some credit cards have a 0% introductory Annual Percentage Rate (APR) where cardholders accumulate no interest for a set period of time. Borrowers able to repay the full amount before the initial rate expires can benefit from using credit cards.

There are also several drawbacks to using credit cards. They often come with a high interest rate, and if borrowers carry a balance on their card and only make minimum payments, they could end up paying a lot of interest over time. In addition, if cardholders miss a payment or make a late payment, they may be charged fees and their interest rate may go up.

Student Loans

Student loans, while they should only be used for educational expenses such as tuition, books, and fees, are another type of loan that doesn’t require home equity. There are both private and federal student loans. For federal loans, students and parents are typically allowed to borrow up to a certain amount depending on several factors, including whether they’re enrolling in graduate or undergraduate education, and their dependency status. Generally, private student loans have a higher interest rate than federal student loans. Federal loans also typically have fewer benefits, such as forbearance, deferment, and income-based repayment programs. Unlike federal student loans, interest rates and terms for private loans can vary based on the lender, so borrowers can shop around for a better interest rate.

Source: Northwestern Mutual

Contact: Don Klein, 1-800-323-7033

Utilizing the cash value through policy loans, surrenders, or cash withdrawals will reduce the death benefit; and may necessitate greater outlay than anticipated and/or result in an unexpected taxable event.