When it comes to borrowing money, it is always recommended that you are extremely careful while choosing the type of loan you apply for. Some loans come with too high of an interest, others with a narrow window for repayment, and others come with too many restrictions regarding money usage. But, that’s just incomplete information; research is the way to understand the full picture. To start you off, here we’ve listed down the pros and cons of one of the most popular types of loans: consumer loans.
– It’s A Flexible Financial Solution
There are two main types of consumer loans: closed-end and open-end. The names refer to the method of borrowing a loan provides. Open-end loans mean that you can borrow as little or as much as you want until you reach a set limit, then you pay off your debts at a set time period. Sounds familiar? That’s because debit and credit cards are open-end consumer loans.
Contrarily, a closed-end loan is when you borrow a sum of money and pay it back over an amount of time; like mortgage loans, car title loans, and so on. The beautiful thing is that under the umbrella of consumer loans, you have such a wide variety of loan options to choose from so as to suit your exact financial needs.
– You’re Never Limited to One Lender
Imagine needing a bulk of money to buy a boat. Now, imagine needing a smaller sum of money for a time-sensitive investment opportunity. You got a consumer loan from a commercial bank to cover the boat, but they’re not allowing you to take out multiple loans, what do you do? Just go to one of the countless other sources. An online savings and loan company, for example.
All that you have to do is visit the website of the company of your choice and follow the instructions. According to www.instabank.fi, operating online allows lending companies to reduce operating costs, which, in turn, can lead to cheaper loan prices. This means that with the lending sources available, you can take out more than one loan, with different interest rates, and time won’t be an issue.
– It is Easy to Get Carried Away
With the multiple sources that provide consumer loan comes a sacrifice. Going to commercial banks, licensed lenders and businesses is fine, but when you start going to other sources, you need to be careful. Loan sharks, for example, are illegal and extremely risky, but some people go to them in a moment of despair. Why? Because once you take out a loan, it becomes easier to take out more. Little by little, you’ll eventually find yourself with a pile of debts.
Once you get carried away like that, you’ll get hit by the realization that you’re incapable of paying off the monthly interest rates. What does this mean? Compounding interest which is nothing but a cherry on top of a sour sundae. So, when borrowing, you need to keep your eyes open, and check yourself before you wreck yourself.
– They Come With Tax Drawbacks
Since we’re talking about balance and how every good aspect comes with a price, we also need to address taxes. Due to the fact that consumer loans are for personal use, interests paid on most types isn’t considered tax-deductible. Meaning, you’ll be paying off your loan and interest plus taxes.
However, that doesn’t go for all loans. Mortgage loans are considered a tax-deductible loan, but only up to a point. Does that mean you shouldn’t pay your mortgage because they deduct from your taxes? That would be a firm no, because you’d be spending more on interest rates. In short, as we keep mentioning, don’t overdo it when it comes to loans, because the amount of interest you pay won’t be taken into account as a deductible expense.
So, to sum up all that we have on consumer loans, they are a flexible loan category that caters to most types of spending, as well as, long/short-term borrowing preferences. While there are a lot of sources to borrow from, it is always advised that you control your finances. Granted, the variety of lenders make for good options you can rely on in times of financial instability, but it also promotes excessive borrowing. With that being said, before applying for a certain type of loan, make sure you know all about it.
Arthur Brown is a writer covering a range of topics such as SEO, travel, and more.