There are a select few American’s that can get by without taking out loans, they’re called the 1%. Unless you come from money or happen to win the lottery, chances are you will take out a loan at some point in your life. Even wealthy entrepreneurs take out loans. It’s hard to get a business off the ground these days without a business loan. While the need for lending has increased since the recession, the ability to borrow has increasingly become more difficult. As government officials make it harder for payday loan lenders to stay open, many Americans are asking themselves where they’re going to get the money they need.
Cash advances are important to those who face emergency expenses, but they are short term loans typically under $1,000. Student loans, mortgages, and small business loans are credit lines many of us use to achieve personal life goals. While it may be impossible to avoid taking out these types of loans, it’s important to understand your financial responsibility. Take the time to consider the amount you need, and devise a plan for repayment. Here is a better look at the loans many of us will need to accomplish the American dream:
Loan: Student Loan
The cost of education rises every year. Financial aid is only given to those whose parent’s income is well below middle class. For many Americans in the middle class, taking out a student loan is the only way to attend college. Attending a private university often gives a student more opportunities in the real world, but the price of your degree costs around $145,000 on average. Attending state schools can significantly reduce this number, with the average student owing around $25,250 after graduation. When taking out a student loan try to go through the state rather than private institutions. There are more controls over what state institutions can charge in interest rates, and better options for consolidation. If you do need to borrow from a private institution, try not to take out too many separate loans. The larger the amount the lower the interest rate on the actual loan.
When it comes time to repay your loan (typically 6 months to a year after you graduate) you have options. You can defer payment if you are not yet employed. You can also reduce payments, or pay interest only for two years. However, the sooner you start paying off your principal balance, the lower your interest rates will become.
Dream: Home Ownership
Besides education, home ownership is one of the most popular American dreams. The housing market has been bad for quite some time now. Home owners all across America invested thousands if not millions of dollars into properties, only to find out that the selling value is quite a bit lower than they expected. Still many people grow up wanting to own their own home. While it is still a buyer’s market right now, acquiring the funds to pay off a home all at once is pretty impossible. How many people do you know have $50,000-$400,000 lying around? When purchasing a home the buyer typical puts down a down payment, and takes out a mortgage. The key is to save up enough money to put down a substantial down payment, the higher the down payment the lower your monthly mortgage payments.
Most of us take out loans when we have the financial means to pay them back, but sometimes life happens, lay-offs happen, and the ability to make the same payments becomes difficult if not impossible. It’s important to make higher payments, and pay-off debt while we can, rather than pay the bare minimum and lengthen the repayment period.
Loan: Small Business Loan
Another American dream is to be self-employed. It’s a lot more fun bossing yourself around than getting bossed around, but the financial burden can be large. When an entrepreneur comes up with what they believe is an original idea, they typically look to investors or small business loans to help them get their idea off the ground. If you look to an investor to fund our new business, he or she will probably accept a percentage of the profits to appease the terms of the investment/loan. If you take out a small business loan, you will have to repay the financial institution as outlined in your loan agreement.
Dream: Basic Needs
Loan: Payday Loan
While dreams are great they can be expensive, but so can basic needs. There are many Americans who live paycheck to paycheck. These citizens make enough to cover typical expenses, but what happens when an emergency occurs? Payday loans, cash advances, online lending services help these Americans purchase things like gas, groceries, medicine or make payments when their last paycheck just wasn’t enough.
The moral of the story is that while loans can be the means to an end, it’s important that you be financially responsible. The debt crisis occurred, because many Americans couldn’t make mortgage or other loan payments. Always borrow responsibly, and be sure to make timely payments.