There are dozens of reasons an individual would choose to take out a financial loan. Loans are typically classified as secure, and unsecure. A simplified definition is a secured loan has collateral, like a home or a car. Unsecured loans are based off of “your word” you will pay back the money. Below are some of the top reasons we take loans out.
1. Home Loan – Very rarely are we able to purchase a home with cash. Though home prices have dipped over the years, a partial rebound is all but certain. A home loan is typically stretched over a 30 or 15 year repayment plan. Interest rates, though at historic lows, will have you paying roughly twice what your principal balance was to start with.
2. Vehicle Loan – Usually a vehicle loan is repaid over the course of five years. Interest rates are generally pretty low if you have a reasonable credit score.
3. Consolidation Loans – Perhaps one of the most depressing loans we procure is a loan for our loans. In all seriousness, a consolidation loan can be a very calculated option. If you have multiple loans with high interest rates, it is a smart move to pay them off with one loan with a low interest rate.
4. Home Equity Loan – Homeowners may consider a home equity loan when they want to remodel their home. Though not the only option, people get a home equity loan for that very reason.
5. Student Loans – With the ever rising cost of college, many a college student has taken out a student loan. Student loans are backed by the federal government, who set the interest rates.
6. Personal Loan – Since the financial collapse, personal loans are not as prevalent as they once were. Personal loans are unsecured; it is up to the bank to set interest rate and amount they will lend.
7. Payday Loan – Perhaps the most popular type of lending, pay day lenders can be found in almost every city in the U.S. Short term money lenders like Uncle Buck typically loan small amounts of money, for short periods of time. Hence; payday loans are usually due on the borrower’s payday. Beware, payday loans can carry very high interest rates
8. Credit Cards – Credit cards usually offer moderate interest rates. It is wise to keep the number of credit cards in your possession to a minimum.
9. Small Business Loans – Can be used for most types of business, and can cover anything from real estate to needed equipment.
The nine reasons above cover most lending an average citizen will partake in. A word to the wise, have as few loans as you possible.