Using Loans for Major Purchases
There are many situations in life when it becomes necessary to take out loans to finance a purchase. Most people are unable to pay for college education, cars and homes outright, so loans make these things accessible. A loan is a sum of money that is given to a borrower to finance a purchase. Normally banks give loans to consumers. The balance of these loans must be repaid with additional money, called interest.
Finding out about the types of loans available is the first step in getting the money you need to finance your life.
Car Loans
Most people need reliable transportation for work and school, so they purchase cars. The price of cars vary, but most people take out loans to finance the cost of a car. The price you ultimately pay for the car depends on a number of factors, the most important of which is your credit score. If you have a high score, you can often drive a car away without leaving a huge down payment. The lower your score, the more money you will have to pay upfront. Interest rates on car loans vary from 0 to 30 percent. The term of the loan will also determine what your repayment amount and schedule will be. Many people finance cars for 36 months or less while some finance cars for up to seven years.
Student Loans
Attending a college or university can be costly. Many students get bank loans in order to pay for the cost of their college tuition. These loans do not have to repaid while the student is in school. In most cases, students will start to repay these loans six months after they graduate from college. There are many types of loans available, from low interest federal loans to private loans from banks and credit unions. Students can also get loans to finance graduate school education, study abroad and independent study. Student loans are considered “good” debt in that the value of the product (education) increases over time. Some students take out multiple loans to cover the cost of their education. In this case, they often opt for loan consolidation when it is time to repay the loan.
Mortgages and Home Loans
The average family will purchase three homes in their lifetime and use mortgages to finance these purchases. Home loans are some of the most common types of loans, and are available to most people with steady incomes and decent credit. There are many strict requirements for obtaining a home loan, and borrowers have to be on top of their finances in order to get the best deal for the money. If you have credit challenges, it is best to tackle them before applying for a loan. By improving your credit score, you are more likely to qualify for lower interest rates and better rate terms. It can be disheartening to find the home of your dreams and not be able to get the financing you need for the purchase.
Short Term Loans
Short term loans are intended to be used for emergencies and unusual situations that require a quick outlay of cash. An unintended car repair, a medical emergency or a sudden need to move can cause people to seek out payday loans. These loans are meant to get the borrower through the rough patch until they get back on their financial feet. The interest rates on these loans can be quite high, from 100 to as much as 300 percent. These loans have come under fire from critics who claim they unfairly target the poor and desperate. When used responsibly, short term loans can be a helpful resource. In other cases, these loans can cause undue financial hardship for years.
Getting the best loan to finance your major purchase is often a necessity. Home loans, student loans and car loans help you to obtain the things that will enrich your life.