Banks offer several different types of lending products, each with their own perks, pros and cons. Understanding each loan product, when they are best used, and their potential drawbacks is critical if you ever need to borrow money from the bank. You want a loan product that best suits your lifestyle and unique financial situation. We will discuss the various lending products offered by banks and go over when they are best utilized.

Personal Loan

Banks have started to offer these once again. These loans work best if you do not own a home or other asset that you are willing to borrow against or use as collateral. All these loans require is your signature in most cases, although there are options for some of these loans to secure them with collateral in return for a lower interest rate.

You can use a personal loan for anything, with no restrictions, unlike many other loan products. You can use these for home repairs, car repairs or even that trip to Jamaica you have been wanting to go on. Repayments have a set payment amount and a set period of time to repay the debt. You should aim for a fixed interest rate versus a variable interest rate, or else you risk an ever compounding interest debt.

If you want the best possible deal go with a credit union if at all possible. Since credit unions are not for profit, they can afford to give borrowers better rates. In fact they tend to offer rates 2 percent below what banks offer. It used to be harder to join a credit union, but today the rules have been loosened to join, and membership with a credit union is well worth having.

Home-Equity Loan

If you own your own home and have some equity built up, and you need to make a major purchase, a home-equity loan might be your best option. These loan products are very similar to HELOCs, except in two major aspects. The first being that you can borrow a large lump sum of money immediately. Secondly you can obtain a fixed interest rate for the lifetime of the loan. The benefit of this type of loan is that you will know exactly what you owe, exactly what you monthly payments will be, and the assurance that your rate will never go up. The drawback is that your house is used as collateral, if you fail to repay the loan you could lose your home. Obviously if you are confident of your ability to repay the loan this should be of no real consequence.

One of the major drawbacks is that you cannot pay of these loans early without facing a penalty. This is known as a prepayment penalty and home-equity loans are famous for imposing these. Banks also only offer loans for less than 50 percent of the equity you have in your home, to protect their bottom line and investment.

Home Equity Line of Credit

This type of loan is available if you own your own home, have some equity, and want to use that equity for a quick cash injection for purchases whenever you need it. These are known as HELOCs or home equity lines of credit. The benefit of this type of loan is that you do not need to take out all the money at once, instead it acts as a stand by line of credit that you can tap into on a moments notice, such as in the case of an emergency. Once you have your HELOC you are able to use it right away or keep it as a safety cushion. These loan products come in handy for contractors, freelancers and others who have variable incomes and need to tap into a quick cash injection on a moments notice. You can use checks or debit cards to utilize your line of credit. The drawback is that the interest rates are always variable, there is no such thing as a fixed interest HELOC. To counter this drawback however, any interest you pay on a HELOC is a tax deduction, for balances of up to $100,000.