No matter who you are or how much money you have, managing your finances always involves a bit of give and take.

Finding a careful balance between the amount of money you spend and the amount of income you receive is one of the most essential parts of sound financial management, and can also be tricky for some. Regardless of how well you do manage to take care of your finances, however, at certain points during your life you may find it necessary to obtain a cash injection in order to make an expensive purchase or finance something that you or your family needs. In times like these, taking out a loan can be one of the only realistic options available to you.

rocks balancedOne of the main pieces of advice that any financially minded person will often give is to avoid falling into too much debt. This advice is generally sound, due to the many difficulties that can result from owing too much money and having bad credit. While it is true that taking out a loan is one of the simplest ways to accrue debt, this does not mean that loans should be avoided at all costs – especially when they might be the only means of obtaining necessary funds (especially in an emergency). On the contrary, when used in moderation, carefully managed, and paid off in good order, loans can be a perfectly safe and acceptable way to achieve some of your life goals, and can even help to grow your overall wealth over time through intelligent use of the funds they can provide.

Many different types of loans exist, all with different aspects such as the amount lent, the interest rate that applies, the terms of repayment, security (the property that is held as collateral in the event of the borrower defaulting on the loan), and so forth. That said, there are certain types of loan that have proven to be both commonly used and generally acceptable to take out at various stages of life. Coming to an understanding of these loans in particular can help to guide your decision when taking out a loan yourself.


Home loans


One of the most common loans, taken out by thousands of people each year, is the home loan. This type of loan, as the name suggests, is put in place to provide people with the amount of money necessary to purchase a home. Also known as mortgages or home-equity loans, these loans work by lending the necessary funds against the security of the home itself. What this means is that the home purchased using the money lent use’s the borrower’s newly bought home as collateral in the event that the borrower defaults on the repayment of the loan.


modern house


In this situation, the lender (be it a bank, another financial institution, or a private individual) is protected against the risk of lending this large sum of money by the fact that the home can be repossessed and sold to recoup the money lent if the borrower does not repay it. Different terms and conditions apply to different home loans, but on the whole, such loans allow people to purchase homes who would otherwise be unable to do so for financial reasons.


Car loans


parked audi carOne of the first big-ticket items that many people have a need to purchase is a car. As the majority of people are unable to afford a car on their own early in life, or for whom it would be unwise to spend the majority of their savings on one purchase, car loans make it possible to do so by providing a lump sum of money that can finance this kind of expenditure. Car loans can come from different sources, including car dealerships, banks, online companies, and private sources.

In the case of dealership-based loans, these can offer the simplest and most direct means of acquiring the necessary funds to purchase a vehicle. As most dealerships recognise that, without some means of deferring the payment on a new vehicle, fewer units are likely to be sold, many have introduced in-house car loans as a payment option. While this can simplify matters in that you need only deal with one party (the dealership) in taking out a loan and purchasing a vehicle, these loans generally do increase the sale price of the car by a significant amount.


Student loans


Getting a good education can be one of the most important investments you make in your entire life. Unfortunately for some, it can often be an expensive investment as well, and one that generally needs to be made at an early stage of life when funds can be somewhat short. As a result of this, student loans have become some of the most common loans in today’s society.

The different types and sources of student loans are numerous, and each carries with it its own terms and conditions. Generally speaking, however, student loans (which are explicitly used to pay for tuition fees, room and board, textbooks, and other education-related costs) carry lower interest rates as well as extended ‘grace periods’ before repayments need to be made – usually only after the degree in question has been completed.


Small business loans


All businesses require a certain amount of capital to start up, and the small business is no exception. As a result, many banks and other sources offer small business loans to prospective entrepreneurs. These loans generally offer more favourable interest rates and repayment plans than the standard personal loan, but most often require the approval of a detailed business plan. Each loan provider will likely have different requirements in this regard, but, if successfully approved, these loans can provide the much-needed capital that your startup business needs.


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Credit cards


Although many people do not realise it, owning and using a credit card is in fact a type of loan. The account to which a credit card is attached essentially loans money to the cardholder on an ongoing basis for various purchases, with the understanding that the money will be repaid at a later date.

Of course, this system brings with it extra charges and interest, but the fact remains that credit cards can certainly offer more convenient and effective payment methods than many others.

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