Taking out a loan is a big decision. There are so many things to think about and consider before you sign the paperwork. Instead of rushing into the decision, take some time to figure out if your situation can benefit from the use of loans or if you are just digging yourself deeper into financial insecurity. Here are a few great examples of when you should and should not take out loans.
When You Should Take Out a Loan
You should take out a loan for large purchases like a home or a vehicle. Most people do not have the money to pay cash for a home or a vehicle. Loans are a popular option in these situations. You can live in the home or drive around in the car but spread out your payment over the next several years. The interest on home loans is often deductible when tax time comes.
You should take out a loan when you have the ability to pay it back. If you have a set income that will cover your loan payments, loans can be beneficial. Remember that if you use the loan for something right away, like a vacation, you will need to be prepared to spend months paying off the trip. Keep your loans affordable.
You should take out a loan when you want to build or improve upon your credit score. If you’ve had some trouble with credit in the past and want to raise your credit score, loans are a good start. Shop around and find a loan with the lowest interest rate possible. Then, make sure that you make the payments on time each month. This information will be reported to the credit companies and, slowly, you will begin to see an improvement.
When You Should Not Take Out a Loan
You should not take out a loan when you have no way of making the monthly payments. This is setting yourself up for failure and could lead to a poor credit score and, if you participated in any of the secured loans programs, you run the risk of having your property repossessed.
You should not take out a loan when the monthly fees and APR are much higher than some of your other options, even when the deal seems great. Loans often come will all types of benefits that sound way too good to be true. In some cases, these incentives are trying to distract a potential customer from looking at the fees and APR associated with the loan. If it sounds too good to be true, don’t sign anything. Take some time to read through all the information.
You should not take out a loan for a friend of family member. It can be tough to say no but remember that a loan affects the credit score of the applicant. This means that if the money is not paid back or the payments are late, you are the person that will be affected. If the friend or family member’s name is not on the loan, they are not responsible; you are.
post by Katie