Loans and How They Affect Your Finances
Loans have as much of an impact on your credit rating as credit cards do. Having a loan is making a commitment to a long term payment plan in return for receiving a lump sum of funds now. These funds could be used for anything, from school tuition to purchasing a car. Some people take out loans due to necessity, while others have loans for vacations or large purchases they don’t have the money for at that point in time. Loans sound like the perfect way to get the money you need now while not having to worry about paying it back later. But how do loans impact your credit and your finances?
Interest Is Imminent
One thing that most forms of extended credit have in common is interest fees. Credit cards and loans both come with interest attached to their payments. Credit cards, however, can be paid off in full to avoid a monthly interest rate. A line of credit through a credit card is generally much less than that of a loan. Because of this, loans normally have payment plans that span many years to give the borrower time to pay it all back.
While credit cards give you the chance to avoid interest fees altogether, loans do not. Regardless of the percentage, there will always be an interest rate attached to the loan. This will cause borrowers to ultimately end up paying back more money than what they originally obtained. Paying more than the minimum amount each month could alleviate this detriment, but the length of time required to pay off the entire debt would still be substantial.
If you think that paying the extra interest might grow to be a problem, you might consider other options to make your purchases if it isn’t immediately necessary. Some loans cannot be avoided to achieve the goals you want to reach, such as a school loan. With certain items that might seem to require a loan, a bit of patience may help to avoid taking out a loan. By putting aside your money (in a savings account or a CD, for instance) you can save the amount you need for emergency/non-emergency situations.
Multiple Loans, Multiple Rules
The rules of how a loan impacts your finances fluctuates with multiple variables, including how much money you’d like to borrow, what your credit rating is, what your income is and who is lending the money. For this reason, it has become a popular trend to shop around for loans much like one would shop around for a credit card. However, there are certain things to look out for when dealing with certain types of loans. In general, most people prefer to acquire their loans through banks or credit unions because they give a sense of security. There are other loans available through alternate means, each with their own sets of rules.
Many people are familiar with payday loans. These loans are meant to provide you with funds until you reach your next payday, as the name implies. For those who live paycheck to paycheck, a payday loan might seem like a lifesaver. Many payday loans can come with fees that might have a borrower paying 50% or more of what they were looking to borrow. The convenience of having money between paychecks can be negated by exorbitant fees.
Other types of loans have you trading in your income for a period of time in exchange for a lump sum of money immediately. One of the more well-known types of loans to fall under this category is a pension loan. Pension loans are loans that require you to sign over your pension payments for an agreed upon amount of time. The difference between this loan and others is the inclusion of your living wages for collateral.
Some people look to garner a loan quickly through the use of an online site that offers quick cash. One of the main problems people can come across with getting a loan online is the danger they put their personal finances in. Many online loan providers have been prone to customer complaints in regards to poor business practices, incorrect information given and illegal actions against clients. Having a thorough screening process might help to reduce the amount of problems you may run into when looking for loans.
Dealing with a loan is an act of patience and discipline. Just like with other forms of credit, loans can get out of hand if you cannot keep up with the monthly payments. If you find yourself faced with overwhelming unsecured debt, putting yourself on the road to debt freedom is as simple as contacting Guardian Debt Relief. Our debt relief specialists are ready to help you today. Our consultation is free, but the information is priceless. Take the first step towards eliminating your debt and contact Guardian Debt Relief today.