3 Kinds of Loans That Are OK To Take Out

by Darwin on August 3, 2016

Borrowing money isn’t bad, but there is an important inconvenience to note: everything you borrow has to be paid back one day. A lot of people take on debt they can’t handle. This becomes a problem. Too much debt lowers your credit score, drives up the daily cost of living to unsustainable levels, and makes it easier to feel bad about your life. This doesn’t mean that borrowing is bad, though. You’ve just got to understand how borrowing works and how borrowing can actually be used for your advantage. Here are a few examples.


  • Loans That You Can Pay Off Quickly. Loans don’t cost money to take out, at least when you make the agreement. The costs and fees associated with loans comes as the loan matures. Every year (or month, depending on the agreement you make), you’ll pay a percentage of your remaining balance in interest and fees. These interest and fees are called the APR, or Annual Percentage Rate. People who take out loans because they need some quick cash, then immediately pay off the loan as soon as they’re paid, don’t incur much or anything in the way of fees. You’ll have to be very careful to note the particulars of your loan, but generally speaking, you won’t pay a lot of money if you pay your loans off quickly. This is a good rule of thumb no matter what loan you are talking about. The loans found here are a good example.


  • Loans That Improve Your Life, While Being Affordable. Student loans are a great example of this lending category. Student loans are made to be affordable due to regulations from the government. The government wants an educated citizenry. Educated people are more likely to pay their taxes and be good citizens, so the government doesn’t want these people to be crippled with debt. Some people still get crippled with student debt, but it could be a lot worse if the APR of these loans was higher. If you can go through school quickly and get a good job on the other side, you won’t be hit with the worst that student loans have to offer.


  • Loans That Help You Build Wealth. Mortgage loans are an example of a loan type that actually helps people build wealth. When you pay off your mortgage loan every month, you are unlocking ownership of a tiny piece of the value of your home. This is called equity. It’s a kind of wealth, but it’s not liquid wealth like cash. Still, mortgage loans are made to be very affordable, especially for first time home buyers.


There are other good examples of smart borrowing. Some people use new debt to pay off other, more expensive debt. There are other examples as well. In any of the diverse cases you might come across in your life, it’s always important to take a close look at how much you are going to pay to borrow the money, and how long it will take to pay off. If you can afford everything, and you don’t have too much debt taken out relative to your income, you should be fine in the short and long run.

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