Loans – a lot of us are quite wary of them. There is so much negative press surrounding them, it is a wonder anyone is considering them anymore. Are they really as bad as they seem, though?
In some cases, the answer is in fact yes. If you end up taking one out from a loan shark or are amongst the millions of people worldwide swamped with student loans, you probably understand the truth of that statement. However, it is important to keep in mind that not all of them out there are as negative as the ones above.
Some personal loans, for example, can actually help you build your credit score and invest in your future. You just have to play your cards right and understand all that is involved when you take one out. Being an informed consumer is one way you can do this, so do be sure to stick around!
Loans – What are They?
When it comes to taking out a loan, there are eight different ones that you should be aware of. It seems like a lot, I know, but it is not as complicated in practice as it might seem. I will cover them now.
- Student Loans
I will go over this one first since it is not always. applicable internationally. If you are a borrower in Norway, for example, you may not need to worry about it at all. However, in Canada or the United States, the main debt you will probably have in your life will come from tuition costs.
Often, they come from the government, but private lenders also exist. Generally, those private loans are where the real squeeze comes from. The interest rates and overall costs will likely be astronomical. So, I would say these are the ones to be most wary of.
- Auto Loans
If you have a car or are looking to buy one, you are probably already familiar with this category. Generally, they are a sum of money that you can borrow to cover the expenses involved. This does not include the down payment in most cases, though.
So, make sure you read the fine print. That is probably one of the most important things when it comes to all types, of course. If you’re curious about how a lån works in this context, there are plenty of websites and blog posts that you can read for further guidance.
Any homeowners reading most likely are familiar with mortgages. They are definitely important to know about if you are ever planning to purchase a property, which is for sure. You see, they are a loan that comes from a bank to cover the cost of purchasing a home, but similar to the above, they will not cover the down payment.
Something to note is they are a form of a collateral loan. So, the property itself is the collateral. That is in essence the insurance that the bank has to ensure you pay back what was borrowed. If you do not, they will simply seize the property from you.
While that certainly sounds scary, if you make your payments on time, it will be fine. Eventually you will pay it off, and you will enjoy full ownership of your property. So, while they are good to know about, they are not something to be feared.
- Payday Loans
When we talk about predatory lending, this is one of the most infamous examples. The intent is to lend a certain amount of money that will need to be paid back by the next paycheck you receive. Unfortunately, the interest rates are often high, and it can be hard to pay them back on time.
You can read about them more here, https://www.forbes.com/advisor/loans/types-of-loans/, if you want to know more. In general, I would say it would be best to steer clear. Often, they will result in you falling into a vicious cycle of owing more and more money to the lender. While they are easy, that ease comes with a serious price.
- Personal Loans
As the main topic of this article, you might wonder why I did not list them first. Well, I am slating them here because the ones that follow can technically be considered under this category if you choose to use them in that manner. Something of particular note here is that what you can spend the funds on is much more flexible than the other types.
While you cannot spend it on just anything, obviously, you have much more options than funds dispersed for a specific reason. As one example, you could renovate your property. If done well, most renovations can bring a significant increase in value when you decide to sell them in the future.
You could also use it to plan your next vacation or to hold your wedding. Say a location requires a large deposit, for example, to rent out. You might not be able to pay that upfront with your own money, but with a personal loan it is much more accessible.
With that flexibility comes risk, though. Do not borrow irresponsibly or unnecessarily. After all, it could easily come back to bite you. My advice would be to focus on getting a personal loan for purposes that will benefit you in the long run, such as those renovation projects.
- Debt Consolidation
If you have many accounts open from various lenders, you might be experiencing some difficulty with paying all those bills on time and keeping track of everything. Maybe the interest rates are all high, as well. It is costing you a lot each month and you are not entirely sure what to do about it.
One option is to take out a loan to consolidate those debts. What you do is take out that sum of money and use it to pay off the other amounts that you owe. Thus, all that debt is combined into one account rather than spread across several.
It is a good idea if you know your new one would have a lower interest rate than the others. Additionally, if you are a bit disorganized (guilty as charged, here, I will admit it), it may be beneficial. Just be careful you do not cost yourself more money than you would have prior.
- Pool Loans
This one might seem random, or like it does not fit alongside the others on this list. However, adding a pool to your property can add a lot of value to it. So, if you are looking to build one and find it to be just out of reach, you could consider finding a lender who will provide you with one of these!
These are specifically created to help you improve your credit score. Usually, the principal amount is quite small – as low as three hundred dollars in some cases. You pay back that money over a set period. The lender reports the on-time payments to the credit bureaus, and you see a boost to your score!
Are they Recommended?
While many people fear taking them out, at this point taking out loans is a part of adult life. It is nearly impossible for the average person to purchase a car or home otherwise. So, in that case, I would give a tentative yes.
Now, regarding personal loans, usually it is fine. Just be careful not to borrow above your means. Focus on building your credit score and planning for the future. That is when they are recommended – not when it could be detrimental to your well-being.
Despite the rising rates of inflation across the world, there are still options that we have to ensure our own economic success. Research the lenders out there and consider looking internationally if you cannot find one that suits you in your own country. You might find what you are looking for!