What About Loans?

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What About Loans?

Published by sam - 14/08/07 - 09:08:30 am

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Repayments of borrowed money have become permanent items on the personal budgets of most people. Today the typical house-hold debt totals more than $23,000 and the total consumer debt in United States amounts to $2 trillion – about $1.5 trillion in mortgage debt, $192 billion in auto loans, $175 billion in personal loans, and $104 billion in credit card debt.

One reason for this high level of indebtedness is that before 1987, the interest on all consumer debt was tax-deductible, making the true cost of borrowing significantly lower than the actual interest rate of the loan. The Tax Reform Act of 1986, however, phased out the tax deductibility of interest on all consumer loans with the exception of mortgage loans (including home-equity loans) on the first and second homes, and by 1991 the tax-deductibility of non-mortgage interest was be eliminated entirely. As a consequence, borrowing has become increasingly expensive.

Borrowing: Some PROS and CONS

Although the traditional American value system views being in debt negatively, the fact remains that debt, undertake prudently and rationally, can help the borrower achieve goals that would be unattainable otherwise. A mortgage loan may be used to acquire a home that can increase in value while providing the buyer with more comfortable living conditions. A loan for a college education or student loan may broaden the borrower’s employment options. And a personal loan may permit the borrower to take advantage on unexpected bargain in a major appliance or other big-ticket item. The fact is that very few American could enjoy their current standard of living without the use of some form of loan.

There are good and bad uses of loans – a mortgage with affordable payments are a wiser user, for example, than a personal loan to finance an ill-affordable gambling expedition to Las Vegas. But it is also important to recognize that any one type of loan – a mortgage, an automobile loan, or a cash advance through a credit card-is available in good and bad forms, and that the choice you make within any one type can affect your financial welfare just as powerfully as your choice on how the borrowed money is to be spent. There are five types of consumer loans: mortgages, automobile loans, personal loans, home equity loans (actually a new form of mortgage), and credit cards.

We will define later on next blog entries each of these loans and how you can take advantage of them. See next about MORTGAGES.

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August 14, 2007 | Loans, Banking |

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