Loans are a topic that scare a lot of people, and it is certainly understandable why this is the case. In terms of bad press, few topics get it worse than these. Debt is not exactly something that people want to rack up, after all, and credit agreements tend to lead to that result. So, it only makes sense that this is the case.
Are they really something to be so feared, though? Perhaps we can view them through a different lens and understand how they have become such a necessary and integral part of our capitalistic societies. Today, that is precisely what I seek to offer to you.
Now, if you still have reservations once you finish this piece, I understand. Minds will not change in just a day, and honestly, it is more than fair not to want to take out a bunch of loans. That is hardly what I am suggesting. Instead, I want to explain how you can utilize them wisely to achieve certain goals in your life.
For anyone who is interested in that pitch, I highly recommend that you stick around! I will be going in depth about the different types that exist and how each of them can serve its own unique purpose. Hopefully, it will help you decide if it might be right for you, as well as provide some insight on where to start looking!
The Basics: What is a Loan?
To some readers, it may appear inane to start here. Who does not know what one of these is, right? It seems like we hear about them constantly, whether it is in our media or otherwise. There are a million websites like this one, which give their own definitions.
So – why am I retreading old ground? I have my reasons, of course. Primarily, I find that providing readers with various perspectives on one topic can be beneficial to their overall understanding of it. Thus, for the sake of this article, we shall define a loan as an agreement between two parties that involves one person borrowing either property, an item, or funds, with the expectation that it will be paid back or returned at a later, agreed to date.
I know, I know. Long winded, right? Would you believe that a ton of other sources get even more complex and technical with it? I do hope that what I have offered is at least digestible. If not, though, don’t worry. There will be plenty more to cover here today! For now, I am going to delve into the different types that are out there.
Mortgages
I am getting this one out of the way first, since it is not overly pertinent to the rest of this article. With that being said, though, it is one that you should be familiar with. You see, pretty much everyone who decides to purchase a property or home will need to do so via a mortgage.
It is a form of “secured” loan, since if you fail to make the repayments, the lender can seize the property. In turn, the lender handles all of the initial cost of the home other than the down payment that the borrower is responsible for.
Student Loans
In a similar vein to the last entry, these will not be overly important for the rest of what we cover. However, I would be remiss not to at least mention them. While certain parts of the world do not need to worry about them, most of us here in the United States (as well as Canada) do have some on our plate.
They come in a few categories. For the most part, we only need to keep track of federal and private ones. Federal come in the form of subsidized and unsubsidized. Private tend to have higher interest rates in comparison, but most students are only eligible for a select amount of federal aid.
Auto
These are somewhat similar to mortgages, although of course they are for a different type of asset. Just switch “property” up for “vehicle” and you pretty much have the right idea. In this case, though, many savvy shoppers opt to get theirs from their credit union. Consider this your sign to create an account with one if you have not already.
Again, though, you handle the down payment, and the lender handles the rest. If you cannot repay them, they can seize the automobile. Still, they are an important part of adulthood.
Small Business
These are fairly common. Especially in the wake of the past few years, many more small businesses have been taking advantage of them. You see, as most of us already know, money is one of the key factors that holds back companies from expanding or innovating to their full potential.
By utilizing a loan like this kind, you can break those barriers down. Typically, they do not rely on the credit of the owner, either. Instead, the reputation of the company itself is taken into account. Naturally, it is just something to think about.
Consumer
These are probably the most popular ones for everyday people to take out. As you can probably tell from their name, they are geared towards individuals rather than businesses or organizations. Some of the ones that I listed above technically fall under this umbrella, but I want to focus on a separate aspect of them instead.
To get a better understanding of what they are, you could visit billigeforbrukslån.no/lån-på-dagen for some examples of what to watch for. Thanks to the online sphere, we as borrowers have access to many lenders that we may not have before. This includes international institutions, of course.
What can we use them for, then? There are plenty of possibilities. Are you planning a wedding any time soon? Maybe you are looking to book that perfect venue but cannot afford the expensive reservation fee all at one time. That is where a consumer loan could come into play.
Obviously, there are other uses as well. You can get creative with it, since the requirements on how the money is spent are less stringent than the other types. With all of that being said, just remember that you should do your best not to borrow outside of your own means. Credit agreements are not free money. Rather, they are short-term arrangements that you will have to pay back later.
Debt Consolidation
Anyone who has a lot of different loans that they are paying on all at once might already have some familiarity with these. Essentially, they allow you to combine all of those other bills into one monthly payment with a lower interest rate. At least, that is the goal of them.
If you are considering one, do make sure that the interest rate is lower than at least eighty percent of the debt that you are consolidating. Otherwise, it may not be worth it for you. Still, though, they provide a nice way to help those who struggle to remember all of their bills for the various lenders.
Are Loans Worth it?
As you may have already guessed, this is kind of hard to answer in a blanket statement. With that being said, though, you can figure it out for yourself. How do I mean? It is simple.
Examine your own finances critically. You could even hire a financial advisor to guide you through that process, especially if you have a hard time sticking to budgets but have long term goals that you want to accomplish. There are some advisors who can help you to find a lender that will suit your needs as well as accept your credentials.
Once you have determined what sort of loan that you need and have a solid plan on what you would do with the funds distributed, you should begin your application process. It can be lengthy in some cases, although many of the virtual lenders have a fairly short and simple application unlike traditional financial institutions.
What route you go in will likely depend on how urgent your need is. If you need the money right away, you may want to opt for one of those virtual choices. Just be careful and think about it before you make an impulse decision. Those repayment plans are no joke, after all, even with low interest rates!
What did we learn?
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