4 typical loans and what you need to know about them
BY READERS DIGEST
28th Aug 2019 Managing your Money
Everyone at one stage of their lives will need to take out a loan – and many will take out several across the course of their lifetime - we take a look at the big four.
Mortgage
Buying a house is indeed a significant investment and who doesn’t want a home they can call their own and avoid paying rent towards someone elses bricks as well as all the other troublesome fee’s that can come with renting! Paying with cash upfront for your new home is ideal, but the reality is that most people can’t afford to do so. Practically speaking, people often go for loans or in this case, mortgages.
By definition, a mortgage is a form of financial assistance that you get from legitimate operations such as banks and lending companies when you purchase a house. When you apply for a loan and eventually get it, contracts will indicate that you should pay the amount borrowed with additional interest. The banks will use the house as collateral for your loan.
Your house as a “collateral” means that the bank can seize that property to pay up for the amount you borrowed in the event of a default. A default is when a person fails to comply with the contracts agreed upon earlier.
Auto Loans
Another big investment you’ll probably make is to buy your own car. Owning a vehicle is at top of many people’s priorities - second only to owning a house. However, buying a car entails a lot of responsibility and you need to consider the cost of everything that comes with it, such as petrol, maintenance, repairs and insurance, etc. Before you get to that though, you’ll need to buy the actual car.
Auto loans are conventional, as a lot of people enjoy owning one and see it as a necessity. Dealerships are quick to offer you financing to get your vehicle. This may help you get a low interest deal, but you can also explore borrowing from other lenders on who can offer the best rates for your budget.
Before anything else, it’s also good to have a significant deposit before you buy any car. Having a good deposit can significantly lower the monthly rates of your car loan.
Banks, creditors, and lending companies can and will take your car as collateral should you end up in default. Be warned, repossession is relatively common, and a lot of owners end up turning their cars to repo because of financial difficulties. Before buying a vehicle always be 100% sure that you’re ready and able to deal with the responsibilities of owning a car.
Student Loans
University is expensive. Depending on your chosen field, costs can be as high as $25,000 a year and that doesn’t necessarily include the daily costs of living in that number. To help with pursuing your career, students can opt for public or private loans.
In the United States, public loans by students are loans that come from the government. Private loans, on the other hand, are offered by private individuals or companies. Whether it’s a public or private student loan, the government and the private institutions involved always have a say in the amount of the loan.
Don’t let it scare you though; according to the current US Debt Statistics, everyone can apply for a student loan and is enough motivation to go for higher education.
Credit Card Loans
A lot of people own a credit card nowadays. Most people even have two to three of them. When you use a credit card to purchase services or products, you incur credit card debt. Once you use your credit card, the bank or the issuer will automatically loan you the money to make the purchase. Of course, you will have to pay back the money on a specified date, with interest.
Credit Cards purchases don’t often need collateral when you make purchases. If you can’t pay your credit card loans and debts, a bank cannot go after your assets and properties. Easy as it may sound, applying for a credit card requires a person to have a good credit score.
A lot of people often fall in love with using their credit cards as they think that it provides them with more “purchasing power.” Although this might hold true to some extent as credit cards do give you a hassle-free way of buying things, it’s worth remembering that credit cards all have credit card limits and going over them isn’t good for you or your credit card score.
Credit scores aren’t just reports and numbers to mess with. If you don’t make good on your credit card bills, a bank can lower your credit scores, freeze your bank accounts, and seek help from collection agencies. A bank or a person can even pursue legal methods such as suing you should you fail to pay up your debts.
