There are many different types of loans available to you, with everything from low-interest, long-term loans for large purchases to high-interest, short-term loans designed to get you by for a week or two. Knowing which loans to take out at what time is part of being a savvy financial planner.
Some loans can actually be very helpful, especially if you’re trying to make a large purchase like a home or car. Still, it’s important to sort through these loans carefully because you want to find the loan with the best APR and other terms for your needs. Here is some helpful advice.
Payday Loans
If there is one type of loan you should stay away from, it’s the dreaded payday loan. These loans come with a high interest rate and must be paid back in a short period of time. They can be helpful if you absolutely need money right now but won’t be getting paid for another week or two, but they can also leave you in a vicious cycle of borrowing more than you have and downsizing each paycheck. As an alternative to taking out a payday loan, consider borrowing money from friends or family or talking to a local bank or credit union. If you absolutely must have money for bills before your next paycheck and a payday loan is your only option for getting it, make sure you pay it back as soon as possible to avoid additional interest charges.
Auto Loans
The best loans to take out are those which allow you to purchase something you couldn’t otherwise purchase. Larger loans like this often come with a long term and a low interest rate, and auto loans are a prime example. While purchasing an older used car for a few thousand is a good option for many drivers, taking out a good auto loan is the only way to go if you’re buying something a bit more expensive—especially if you’re considering purchasing a brand new car. Auto loans generally have low interest rates and allow you to pay off your car over a period of several years. This gives you the flexibility to shop for the car you want without feeling too guilty about spending a fortune on interest or not quite being able to afford it. To make things even easier on yourself, you can even use an auto loan calculator to simulate various loans and determine how much you would owe in interest.
Home Loans
As is the case with auto loans, home loans offer comparatively low interest rates over a long term period. In fact, you can take out a loan to buy a home and pay it off over the next 20 or 30 years. This gives you tons of flexibility financially, and it’s generally the preferred method for buying a home. Keep in mind that you will have to satisfy certain requirements to take out a loan, including proving that you have a certain amount of income and making a down payment on the loan.
The biggest thing to worry about when it comes to buying a home is the changing market. As various parts of the US economy change, so does the market for real estate. Sometimes houses are selling for more than they should, sometimes less. The trick is to try to buy your home when prices are relatively low, that way you can resell your home without losing tons of money.
Student Loans
Student loans are one of the most common types of loans available. These are very special loans with extremely low interest rates, plus they can be paid back over a number of years. For most college students today, student loans are the only way to afford school until a better career is on the horizon. There is no problem with taking out student loans to pursue a career you’re interested in. As long as you’re going to have steady income which you can use to pay the loan back, a student loan is a good investment in yourself. Loans aren’t the most complicated thing in the world, but they can be a bit tricky. As long as you follow this basic guide, you should be a successful borrower.
