Loans

What they are

These are financial obligations you owe to finance a purchase or expense.

The common types of products are:

Credit Cards: These are unsecured credit lines that you use to purchase goods and services and are supposed to pay after a certain period of time.
Car Loans: You finance the purchase of a vehicle with these loans, with the obligation to pay every month with interest for a set number of years.
Housing Loans: Also called home mortgage, you borrow money to buy a lot, house, apartment, or condominium, or to construct a house or remodel a home. Usually long-term, 10 to 20 years, you pay regular (usually monthly) amortizations.
Home Equity Loans: These are loans using your existing home as collateral.
Personal Loans: These are usually unsecured loans that you take to pay for miscellaneous expenses.

What you get

You receive a certain amount to fund a purchase in exchange for a promise to return the amount plus interest.

What they cost

You pay interest over a certain period of time, and it's not unlikely that the total amount of interest you will pay is actually more than the cost of your purchase.
If you don't pay on time or in full, as with credit cards, you get charged with late payment fees and exorbitant interest. In the case of a housing or car loan, if you default on your payments, you will lose everything - the house or loan, and the payments you've already made.
You get charged also for a myriad of fees, such as application fees, annual fees, processing fees, and the like.

What's good

You get instant gratification. You don't have to wait for years to get that dream car or go to that dream vacation.
You use leverage. You don't need to have loads of cash to start owning your own home. You use other people's money to finance your purchase. And you can use leverage to earn a much higher return if you decide to turn your purchase, particularly appreciating assets like a house, into an investment.

What's bad

Instant gratification is a double-edge sword. You get what you want now, but it may end up fooling you into believing you can afford anything. And it may prevent you from developing a habit of saving and the discipline of delayed gratification.
If not managed well, debt can consume your life. You'll end up working practically for your creditors. And you risk getting blacklisted. That's not even counting the cost to your health, marriage, and happiness.

Where to get them

Banks and financing companies. Car and real estate companies also have in-house financing.

¶ 8:15 AM

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