Know When Borrowing Makes Sense

Do you know the right and wrong times to borrow money? It’s strange, but some people are extremists on this topic. For example, you’ll hear from some folks who preach that all borrowing is wrong, no matter what the reason. Others are on the opposite end of the reasoning spectrum, saying that whenever you need cash, you should locate a lender and sign a loan agreement. The truth on this subject, as with so many others, is that the best advice is somewhere in the middle. Yes, there are good and bad reasons for taking on debt. The trick that most responsible adults have figured out is exactly when to do so. If you’re confused, or have never been in the position to need funds, perhaps it’s a good idea to review some of the main reasons people take out loans, are willing to pay interest, and don’t mind being in debt. When the cause is right, there’s no reason to be phobic about borrowing money. Here are four situations in which it makes perfect sense.

First Home

Nowadays, with home prices in the stratosphere, few people are about to save enough to cover a 20 percent down payment, much less the entire cost of a house. Especially for first-time buyers who often tend to be young couples, it’s necessary to sign a mortgage contract with a lender in order to move in to a new residence. This is an ideal way to build up equity and increase your credit rating at the same time. If you can qualify for an FHA loan, it’s even possible to get the down payment into the two or three percent range, which means you’ll be financing more of the cost but not having to pay as much up front.

School

Few people can afford to pay all their educational expenses from savings. For most others who attend college, university, or graduate school, a student loan is par for the course. In fact, when you take out a private education loan, you can take advantage of competitive interest rates, high credit limits to cover all the associated costs of schooling, and no prepayment penalties. Ask the next dozen or so college grads you run into if they used loans or savings to finance their schooling. Chances are, you’ll discover that nearly all of them leveraged the power and good financial sense of education loans.

First Car

Older adults often pay cash for new cars, but younger folks buying a first car usually don’t have the savings to cover the entire sticker price. That’s why auto loans are the most common of all. It’s easiest to borrow for a new car, but some lenders will write loans for late model used cars as well. As long as you have enough income to make the payments on time, paying for a car with credit can be a smart way to obtain a reliable vehicle and build up your credit score.

Debt Consolidation with Lower Interest

If you can find a lender who offers lower interest rates than what you’re currently paying on your debt, consolidation loans can be a smart way to save some money and streamline your financial situation.

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