In this day and age, it is nearly impossible for people to go through life without taking out a loan. With that being said, a lot of people are concerned about taking out loans, and assume that they will somehow ruin their financial futures if they do. This is far from the truth — if taking out a loan ruined people financially, then the majority of people in America would be in real financial trouble. Right now, it’s estimated that seven out of ten people have at least one credit card — which is, in essence, a loan, as credit taken out is paid back over time. For that matter, 88% of home buyers have mortgages, which are home loans. With the costs of property, cars, college, and much more rising, it’s very likely that you will have to take out a loan at some point or another.
What can cause trouble isn’t so much the act of taking out a loan in the first place, but taking out bad loans or trusting bad institutions. Whether you’re looking into an auto loan or a mortgage loan, you should be careful about who and what you’re borrowing from. Let’s look at some of the most common loans available, and what you should consider before borrowing.
1. Personal Loans
Personal loans can be taken out for a number of reasons — hence the term “personal”. Many people turn to private lenders for personal loans, which is very often a mistake. Private lenders aren’t held to the same sets of standards as institutions, and it’s often much easier to be scammed by a private lender. A credit union is potentially a great option for those looking to take out a personal loan. Credit unions are not for profit, and serve those that live in specific areas. Usually, they require a one-time membership fee; however, you’ll be twice as likely to find free checking accounts at a credit union versus other institutions. When it comes to loans, credit unions will often require hard credit checks to potential borrowers. However, they usually are cheaper than loans offered by private lenders or other alternatives. This can be especially crucial for borrows with bad credit scores, who are often charged very high rates. Most credit unions cap their rates at around 18%, though this can at times vary. Ultimately, those with poor credit would be more likely to find loans through credit unions, with lower rates.
2. Auto Loans
Unless you are buying a car privately — which can put you at risk for buying a poor car or being scammed — you will quite possibly have to finance your car. Essentially, this involves taking out a loan, with or without a down payment. Different car dealerships offer different types of financing options. Smaller dealerships may work with smaller banks, which can be reassuring for some first time buyers. However, larger dealerships may work with bigger institutions — yet this may also allow them to have a greater variety in the terms of the loan. Payments can vary depending on the type of car being bought, its worth, and the institution backing the loan. Make sure you understand how your car is being financed before you sign on the dotted line — there may be more to it than you think, and you should consider financing a car a loan like any other.
3. Student Loans
Student loans are necessary many — with a university education being so expensive in this day and age, most find themselves taking out at least one loan to pay for it. Keep in mind that federal loans are usually easier to pay back than private loans. However, private loans can potentially be refinanced at a later date, adding for some type of relief. Private loans can potentially be refinanced or consolidated through credit unions, which will can help former students manage their debt on a simpler scale.
No matter what loan you’re considering, don’t be afraid to ask questions; loans can be manageable, and they can work for you.