Money Management

A personal loan and a home equity loan could both provide access to quite a bit of money, but they work differently. Find out more here. 

A personal loan and a home equity loan have some important qualities in common. With both types of financing, you can often borrow a large amount of money so you can use the loan to pay for very expensive purchases, to consolidate debt, or to improve your home. And both offer you the chance to get a lump sum deposited into your checking account so you can use the money for almost anything you want.

There are some important differences between a personal loan and a home equity loan, though, and you need to carefully consider them when you’re deciding which one makes sense for your situation. Here are five of the biggest differences.

1. The application process

The process of applying for a personal loan is quick and easy. You can usually fill out an application online and often get approved and get your funds within the same business day. You’ll need to provide basic financial information, but usually very limited documentation beyond proof of income.

Applying for a home equity loan requires a lot more effort. You’ll often need a home appraisal and lots of details about your income and other debts. You may need to provide pay stubs and tax returns and bank statements. It can take anywhere from a few weeks to a few months to go through the entire application process and actually get your money.

2. The upfront costs

Home equity loans typically come with closing costs equal to 2% to 6% of the amount you’re borrowing. Fees can include origination fees, appraisals and surveys, and document preparation costs.

Many personal loan lenders don’t charge you any upfront costs. So you won’t have to pay any money at the start to get your loan.

3. The amount you can borrow

Personal loan lenders have maximum and minimum borrowing requirements. Minimums could be as little as $500 or $1,000 and maximums as high as $100,000. Your loan limits will be based on lender policy and your income, along with what the lender thinks you can afford.

With a home equity loan, your lender looks at your income and affordability, but the amount of equity in your house is a major deciding factor. The total combined value of your mortgages (including your first mortgage and home equity loan) usually can’t be above about 80% to 90% of your home’s value. So, if you have a house worth $400,000 and you owe $300,000 on it, the maximum you might be able to borrow is around $20,000 to $60,000.

4. The interest rate

Home equity loans usually have a lower interest rate than personal loans. As of December 2023, the rates are somewhere around the 8.95% range depending on lender and borrower qualifications. The average personal loan rate is 12.17%.

You’re almost always going to pay lower financing charges with a home equity loan since it’s a secured loan. Your house guarantees the lender can be paid back — if you stop making payments, the lender can take possession of your home (more on this below). With this guarantee, the lender takes on less risk than with an unsecured personal loan.

5. The risk to your home

Finally, it’s important to consider the risk to your home. Whenever you get any kind of mortgage loan, the lender has a legal interest in your house. If you don’t pay, the lender can foreclose. As a result, the risk of losing your house is much greater with a home equity loan.

You should carefully consider these big differences when deciding what kind of loan is right for you. If you want a quick, simple, lower-risk loan without upfront costs, a personal loan is a good choice. If you have lots of equity in your house, can qualify for an affordable interest rate, and don’t mind jumping through extra hoops, you may decide to opt for a home equity loan instead.

Our picks for the best personal loans

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 our picks for the best personal loans.

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To qualify for a good rate on a big loan, your credit score is vitally important. Read on to learn how to boost yours ahead of applying for a mortgage. 

I don’t know about you, but I’m gearing up to buy a house in 2024. It’s taken almost two years of different personal finance moves (including paying off debt and saving money) to reach this point, but I’m finally almost ready.

If you’re in the same boat as I am, you’ve likely also been waiting a long time and probably want to ensure that no credit missteps prevent you from securing a mortgage loan. And rates aren’t exactly competitive these days — according to Freddie Mac, the average rate for a 30-year mortgage loan is 6.61% as of this writing. So the better your credit score, the more likely you are to get the lowest rate available.

So here’s a list of credit dos and don’ts to help you get in the best shape possible to apply for mortgage pre-approvals and find the right lender and home loan for you.

Do this…

Here are your credit must-dos before you give mortgage lenders a peek at your finances.

1. Keep current on payments

Ideally, you pay your creditors on time, every time, but if you’ve been a bit lax about that in the past, it could be reflected in your credit score. So right now, ahead of opening your finances to mortgage lenders, resolve to make every payment to credit card and loan issuers by its due date. Payment history is the biggest part of your FICO® Score (35%), so this move is vitally important if you want to show lenders the best credit score possible.

2. Pay down debt

If you want to give your credit score some extra polish before applying to lenders for mortgage pre-approvals, consider paying down some existing debt, if at all possible. This is a good idea for two reasons. First, you’ll be able to go into a huge loan commitment (a mortgage) with less money already owed. Won’t it be nice to stress less about the monthly bills at a time like this?

Second, paying down debt has a positive impact on your credit score. I paid off all my existing debt not long ago, and my credit score climbed by 100 points. The amount you owe creditors is 30% of your FICO® Score, so you’re sure to see some improvement if you can lower your existing debt.

3. Check out your credit reports

Finally, hop on over to AnnualCreditReport.com, where you can access your credit reports from the three major consumer credit bureaus. Your goal is to check them for accuracy. If you spot any errors (like a delinquent account that never actually belonged to you), you can dispute the entry with the credit bureau to have it removed, and bump your credit score in the process.

…Not that

Now that you know what to do, here’s what not to do.

1. Open new accounts

A new credit card with a sweet sign-up bonus sounds pretty good ahead of buying a home, right? Yes, it does — but since you’re about to have mortgage lenders running credit checks, you really want your credit score in good shape. A new credit inquiry dings your credit by a few points, and if you’re hovering between two credit score ranges, your new credit card could make it difficult to get the best mortgage rate possible.

2. Make big purchases

The prospect of having a new house to furnish is exciting, but now is not the time to start shopping for a new couch or a second fridge that you’ll be purchasing on credit. Mortgage lenders want to see that you’re responsible with credit, and making big purchases ahead of taking on the financial commitment of a home is a bad move. Plus, do you really want more debt to pay off right now, in addition to dealing with how much money you’ll be sinking into a down payment, closing costs, and moving itself?

3. Close credit accounts

As you’re cruising through your personal finances ahead of applying with mortgage lenders, you might be feeling tempted to shed some credit card dead weight. Unless you have a compelling reason to close a credit card account soon before you start mortgage shopping (such as an annual fee on a card you don’t use), resist the urge. If you’d be losing a long-standing account or one with a high credit limit, this is a move best avoided — you could lose some credit score points in the process. Closing an account impacts both your length of credit history and credit utilization ratio (if you have balances on other cards).

In short, if you’re buying a home in 2024, now is the time to avoid making waves with your credit. Ensure your credit report is accurate, stay the course with on-time payments, and hold off on closing old accounts or opening new ones until the dust has settled and your mortgage loan has closed.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

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.The Motley Fool has a disclosure policy.

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The flashiest and fastest EVs get all the attention. Read on for humble electric vehicles that have the best value. 

It’s a good time to buy an electric vehicle (EV). Never before have EVs had longer battery ranges, impressive 0-60 mph times, sleek styling, and enough tech wizardry to convert any last remaining Luddites.

But there’s still one small problem for EVs: many are expensive. The average transaction cost of a vehicle powered by electric motors and batteries is more than $51,700, according to Kelley Blue Book. Sure, the new EV tax credit rules will help offset that high sum, but your money will go even further if you opt for one of these underrated EVs.

1. Volkswagen ID.4

MSRP: $38,995

The Volkswagen ID.4 takes a decidedly conservative stance on style amid the plethora of spaceship-looking EVs floating around. That may be off-putting to a buyer looking for an unconventional EV design, but it also means the ID.4 could be a good choice for those ready to dip their toe into the EV water.

The base ID.4 puts out 201 horsepower and has an estimated range of 209 miles. Neither of those numbers will impress your friends, but the 19-inch rims and 12-inch touchscreen display might. The charging time of about 36 minutes, from 10% battery life to 80%, means you may want to stick mostly to charging the ID.4 at home, but it’s still more than adequate charging for a compact crossover.

At a starting price of $38,995, the Volkswagen ID.4 offers a good value for buyers who want a good-sized EV for getting around town without all the flash of other electric vehicles. The icing on the cake is that ID.4 received the Top Safety Pick+ designation from the Insurance Institute for Highway Safety (IIHS), which might help with your auto insurance premiums.

2. Hyundai Ioniq 6

MSRP: $42,450

If a long-range EV sedan is more your style, the Hyundai Ioniq 6 will fit the bill. With unique styling, the base rear-wheel-drive Ioniq 6 has an estimated 361-mile range and has 225 horsepower.

That’s an impressive range, and you probably won’t have to worry much when the car runs out of juice because the car has an ultra-fast charging system that can get the battery back to 80% in as little as 18 minutes with a 350kW charger.

The electrified sedan has a 12.3-inch touchscreen display, an eight-way power driver seat, heated front seats, and plenty of standard safety features that make the base level Ioniq 6 anything but standard.

Further boosting its credentials, the Ioniq 6 scored a 10 out of 10 in a review by Car and Driver review and IIHS gave it a Top Safety Pick+ rating.

3. Nissan Leaf

MSRP: $28,140

With a price tag of well under $30,000, the Nissan Leaf might be the best value on this list of EVs; just don’t plan any road trips without first mapping out the charging station locations. The base model has a range of just 149 miles, and you’ll wait about 40 minutes to get to 80% charge on the fastest recharge setting.

Still, it’s hard to beat Nissan’s little sedan if you’re looking for an inexpensive EV for getting around town. You can always upgrade to the Leaf SV Plus if you want the longer range of 212 miles and slightly beefier 214-horsepower motor versus the base model’s 147 horses.

Nissan’s EV earned a five-star overall safety rating from the National Highway Traffic Safety Administration (NHTSA), making the Leaf the safe choice in more ways than one.

How to save money on electric vehicles

If you’re in the market for a new EV, there’s good news: Claiming an EV tax credit just got easier. Buyers can now receive an upfront tax credit of up to $7,500 when they buy a qualifying electric vehicle. Previously, some buyers had to wait until they filed their taxes to receive the credit.

Not all vehicles qualify, but you can find the ones that do on the U.S. Energy Department website.

And while you’re searching for which EVs qualify for the tax credit, you may also want to spend some time getting car insurance quotes. Electric vehicles often have higher repair costs, which can drive up insurance premiums.

Spending a few minutes getting rate quotes from car insurance companies could ensure your value EV actually ends up being a good deal.

Our best car insurance companies for 2024

Ready to shop for car insurance? Whether you’re focused on price, claims handling, or customer service, we’ve researched insurers nationwide to provide our best-in-class picks for car insurance coverage. Read our free expert review today to get started.

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.The Motley Fool has a disclosure policy.

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Workers in 22 states received a pay bump starting on the first of the year. Plan to make the most of a higher wage in 2024 with these strategies. 

Between soaring inflation and rising interest rates, Americans seemed unable to catch a break in 2023. However, with the new year came some welcome relief for the personal finances of many minimum wage workers, some 10 million of whom will see a pay increase in 2024. As the saying goes, “failing to plan means planning to fail.”

A $7 billion impact

Early this month, minimum wage workers across the country saw an increase in their hourly rate. In 22 states, as well as 38 cities and counties, an estimated 10 million workers will see their income rise. A study by the Economic Policy Institute estimates that such rate increases will generate nearly $7 billion in additional wages for workers across the country.

One of the biggest changes will affect workers in Hawaii, who will see their hourly pay increase by $2 per hour, to $14, as a result of recent legislation in the state. Workers in other states will see a more modest increase, with their wages increasing by an inflation adjustment only. Some counties are taking aggressive steps to increase the minimum wage, such as Boulder County, Colorado, which increased its minimum wage by over $2 per hour in its march to reach a $25 minimum wage by 2030.

However, minimum wage workers in many states will see no change to their income. In fact, 20 states currently maintain the federal minimum wage of $7.25 an hour, which has not increased since 2009. Meanwhile, the purchasing power of a dollar has dropped nearly 30% over the same period. A recent proposal by Democrats would increase the federal minimum wage to $17 per hour over the next five years, including an immediate increase to $9.50 an hour.

Short-term steps

For many workers, an increase in the minimum wage offers a chance to get on better financial footing. Some Americans have been forced into debt as the cost of everything from groceries to gas has risen, and those in debt have been driven deeper by high interest rates. With extra income, workers can take important steps to get out of debt — and stay debt free for good.

Fueled by rapid inflation and a dramatic increase in interest rates on debt, credit card balances among Americans crossed the $1 trillion mark last summer. If you’re one of the millions of Americans struggling with credit card bills, extra cash can be used to gradually pay off high interest debt, and can supercharge a debt snowball strategy. Using a balance transfer credit card or negotiating a lower APR are other strategies to approach debt payoff without accumulating even more interest.

Once debt is paid off, it’s vital to avoid incurring debt in the future. Building a proper emergency fund can save Americans from being forced into high-interest debt when unexpected expenses come up. Experts generally recommend accumulating between three and six months’ worth of expenses in a savings account to insulate savers from emergencies.

Long-term priorities

After managing short-term financial challenges, savers should identify long-term goals and begin taking the steps necessary to reach them. For many Americans, long-term goals include purchasing a home or building a retirement nest egg. Saving extra income today can go a long way toward reaching financial wellness in the future.

As with any goal, progress is made by consistent action, so contributing even small amounts to savings every month can add up over time. When you identify a goal, make sure you’re saving for it in the right way. Saving for retirement is often best done in a 401(k) or IRA (for the tax advantages), while a 529 savings account may make the most sense for building an education fund. And for other goals, a high-yield savings account can net a good return on your cash without the volatility of the stock market.

The past few years have been rough on American workers, but some relief is on the horizon for millions of those earning minimum wage. Those receiving a raise this year should prioritize short-term goals like paying down debt and building an emergency fund. After that, long-term savings for things like retirement should take the front seat. Create a savings plan for 2024, and resolve to make the most of higher earnings this year!

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If you want to save more money, spending less is a good place to start. Get ideas of where to cut back with a few places where people often overspend. 

Saving more money is a popular goal. Among those with financial resolutions for 2024, over one-third had a savings-related goal, according to research by The Motley Fool Ascent.

One of the easiest ways to save more is to cut back on your spending. Lots of people have areas where they overspend, often not even realizing how much certain expenses are costing them.

But it can take a long time to go over all your expenses, and there are likely many areas where it’s hard to cut back. To save time, check out how much you’re spending on the following expenses first. They’re all areas where people frequently overspend, and it’s not that difficult to spend less on them.

1. Dining and food deliveries

Dining out has always been an area where it’s easy to overspend. Going out for dinner or drinks is fun, and much more convenient than cooking at home. And if you want a meal from a restaurant without leaving your house, DoorDash, Uber Eats, and the many other food delivery apps have you covered.

There’s nothing wrong with spending money on a nice meal, as long as you don’t overdo it. But make sure to keep track of how much you’re spending. A whopping 30% of consumers were spending an average of $180 at restaurants each week in 2022, according to Popmenu. That’s $9,360 per year. Unless you make a high salary, that kind of spending can make it hard to reach your savings goals.

If you’ve been spending a lot of money on dining, swap out at least one or two restaurant visits (or deliveries) per month with home-cooked meals. It’s not a drastic change, and it could free up $100 to $200 or more.

2. Your car payment

Cars are expensive, and they’re status symbols, so it’s tempting to spend more than you can afford. If you’re not careful, you could end up with a car payment costing you 25% or more of your income, for 72 or 84 months. Some personal finance experts have even called cars the biggest wealth killer because of how often people overspend on them.

If you’re planning to buy a car soon, figure out how much car you can afford first. A couple of good rules are that your car payment should be no more than 10% to 15% of your income, and an auto loan for a new car should be no longer than 60 months.

If you have an expensive car payment, consider selling the car and getting a cheaper vehicle. This is definitely a bigger change than cutting back on dining, but it could make it much easier to add to your savings account.

3. Streaming services

There are an overwhelming number of streaming services available. The most popular is still Netflix, which costs $15.49 per month for a standard plan with no ads. If you have kids, you may want to add Disney+ ($13.99 per month for a Premium plan with no ads). Then there’s Max ($15.99 per month), Apple TV+ ($9.99), and many more, all with their own unique lineups.

Streaming services probably aren’t your largest expense, but they could be an area where you’re overspending. Some people gradually add to their streaming subscriptions, so these could go from costing you under $20 per month to $75 or more.

If you pay for several subscriptions, consider cycling your streaming services. Keep just one or two of your subscriptions active each month. Once you’re caught up on what you want to watch, cancel those memberships for the time being and activate one or two other services.

Those three expenses are a good starting point for cutting back, based on consumers’ typical spending habits. See if any of them are costing you more than you’d like, and if so, start looking for ways to lower your spending in those areas.

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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.Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Netflix, and Uber Technologies. The Motley Fool has a disclosure policy.

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Stay-at-home parents provide a valuable service, but don’t earn income. Read on to find out what this means in terms of life insurance. 

When buying life insurance, many experts recommend purchasing coverage equal to 10 times income. But, what about people who don’t earn income? Since they don’t have a salary that others are depending on, it may seem like there’s no need to buy this kind of insurance coverage.

For stay-at-home parents, the focus on income replacement may make it seem as if life insurance isn’t necessary to protect loved ones in case of an untimely death. But is that the case, or should a parent who stays at home to take care of their kids get covered?

Is life insurance needed for stay-at-home parents?

While stay-at-home parents may not get a paycheck deposited into their bank account, they are contributing services that provide a tremendous value to the family. Those services are not free, even though parents don’t get a paycheck for offering them.

When you factor in everything that a stay-at-home parent does, including child care, housekeeping, cooking, transportation, laundry, and much more, the value of the service they provide is so high that, if they were paid, their average annual salary would be $184,820.

That’s well above the national average salary in the United States. The median household (not individual) income was $74,580 in 2022, while the average household income was $105,555. So, if stay-at-home parents were paid, they’d be making a much higher income than the typical worker — and the value of the services they’re providing may exceed what their spouse earns.

If a stay-at-home parent passed away, someone would still need to perform all of the tasks they were doing. The surviving parent probably couldn’t do it on their own because they’d still have to work to earn a living — so there would likely need to be a lot of paid help that wasn’t necessary before.

Without life insurance, it’s unlikely that a family would be able to start paying for the costs of all the services they need — at least not without major financial hardship and a serious disruption to their standard of living. Since they’d be left in bad shape without a lot of extra money coming in to pay for professional help, this is the exact type of situation where life insurance is necessary.

And the reality is, it’s not just stay-at-home parents who need life insurance despite not having an income. Anyone who provides valuable services for others, such as a caregiver for elderly parents or a disabled spouse, should make sure they have enough life insurance coverage in place for those who depend on them to pay to replace the services they were previously offering.

Get covered ASAP to avoid leaving loved ones in bad shape

While it may not seem like a priority to get life insurance for someone without income, no one can predict when tragedy will strike. If someone passes away and doesn’t have any coverage, it will be too late and their family will be left without the support services they were offering.

Caregivers should buy life insurance ASAP. They should start getting quotes from life insurance companies right now to find a policy that would ensure their surviving loved ones are provided for. Most insurers offer the ability to get policy prices online, so check how much coverage would be from several different insurers for a policy with at least $250,000 to $400,000 in coverage, and consider moving forward with buying an affordable life insurance plan.

Our picks for best life insurance companies

Life insurance is essential if you have people depending on you. We’ve combed through the options and developed a best-in-class list for life insurance coverage. This guide will help you find the best life insurance companies and the right type of policy for your needs. Read our free review today.

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.The Motley Fool has a disclosure policy.

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