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Is there such a thing as Good Debt?

Sometimes we may hear phrases like ‘good debt’ and ‘bad debt’ but we are often told that debt is a really bad thing. It can be confusing knowing whether there is actually such a thing as ‘good debt’ and whether it really is good or not.

There are different definitions of good debt depending on who you consult, but there are many people that think that it does exist. It usually applies to things like houses and student loans because the items that the debt is used to buy are worth more than the cost of the debt. So if you buy a home, it should increase in value, so once you pay off the debt and the interest it is worth more than those added together, so you have more value in the property than you paid it. This effectively means that you made a profit. With a student loan it is expected that the education that you buy with the loan will allow you to earn significantly more money and in the UK, at least, you will only have to repay it if you are earning well anyway. This may also apply to other purchases, such as borrowing to repair your home which will prevent further damage that could be dearer to repair in the future or that will significantly increase the value. On the opposing side, borrowing money to buy shoes, when you already have lots of suitable pairs, would be considered to be bad debt. As would borrowing to buy any luxuries that you could manage without, perhaps home accessories, brand new cars when you have a sufficient one already and things like that.

However, some purchases are difficult to classify. Let’s give an example of someone who is unemployed and needs to have a driving licence for a job. If they need to borrow money in order to learn to drive, is this a bad debt? If they get the job they will be earning so they will be able to pay off the debt, but it is risky as they may not get the job. However, the skill of being able to drive could help their prospects of getting other jobs. It is rather difficult, in this situation to classify whether this would be a good or bad debt.

Others classify good debt as well researched borrowing. This means that the person borrowing the money has made a calculated decision as to whether borrowing is the best thing for them to do. They have used sites like Monkey to find the type that suits them the best and looks at costs to find the one that is the best value for money. This is certainly a very sensible approach. You want to make sure that you are not borrowing unnecessarily and certainly not borrowing more money than you need to or paying more than necessary.

It is probably best to think about good debt in both ways. So try to only borrow money which will enable you to buy things that will help to improve your future. Then make sure that you really need to borrow, borrow as little as possible as cheaply as you can and then you are getting the best possible deal. It is also wise to keep a close eye on rates to make sure that you cannot get a cheaper loan anywhere else as you may be able to switch lenders and benefit that way. Do watch out for hidden charges such as administration fees for setting up accounts and early redemption fees.

So there is such a thing as good debt but whether a debt is good can not only depend on the type of debt and the planning and research done when taking it out but your own personal circumstances. If you are not in a position to cover the repayments on the debt, then this would be bad debt. It would not take long before you got into trouble for not making the repayments and you could end up being prosecuted. So you do need to think about how you will repay. Consider what money you have coming in and going out and how you will make more money available to cover those repayments. It is also wise to think about how you would manage should your circumstances change. What if interest rates were to rise, your income were to fall or your spending to go up. Consider where the extra money would come from to cover the repayments on the loan.

Should you wait for Interest Rates to be Low before Borrowing?

Borrowing money should not be a decision that you make lightly. It takes a lot of thought, not only to decide whether you really do need to borrow, but to think about when the best time is to borrow. There are many time factors that could influence this such as personal ones with regards to your career or age or more general ones such as the state of the economy and interest rates.

The Bank of England interest rates have a big effect on the cost of borrowing. This is because the rate of the interest rates sets the cost to banks of borrowing from the Bank of England; a cost which they pass on to their borrowers. This means that when Bank of England rates are low, borrowing is cheaper compared to when they are high and borrowing is dearer. It is pretty safe to assume that on a general level the cost of borrowing will be determined by the interest rates but the ease of borrowing is also a factor affected by them. If banks feel that they cannot make much profit from lending, then they may decide not to lend to so many people. They may also reduce lending in risky times, which could be related to interest rates.

The thing to note about the economy is that every part of it affects the other. So low interest rates do not come alone. Interest rates are set according to inflation, which is a measure of prices. The aim of the Bank of England when setting interest rates is to keep inflation around 2%, this means they want prices to rise a little but not too much. This allows businesses to grow but not so quickly that it is unsustainable and things become unaffordable to consumers. So if prices rise slowly,
businesses can grow a bit but they will not lose customers because their prices are not too high. Business growth is important because it means that more good will be available for people to buy and that will keep customers happy, if a company grows it can also employ more people. With more people being paid salaries, more people can afford to buy things and therefore the economy grows, with salaries also increasing at times of growth. With higher pay and more jobs available this can keep businesses and consumers happy.

In times of low interest rates businesses are not growing very fast, by keeping interest rates low, businesses can afford to borrow if they need, so they can expand or cover their costs without having to rely on increasing prices to help them. It also enables consumers with debt to keep their costs down and therefore still be able to afford to spend some money.

So if you are looking to borrow, should you wait until rates are low? Borrowing will be cheaper and so that will be good. However, it could mean that the economy is not growing and this could mean that you are taking a risk as you may find that you do not get an increase in income or you may even lose your job or someone in your household loses their job. If this happens while you are trying to find the money to repay a loan you could find that you are in real trouble. If the economy is not growing and jobs are scarce, it may not be very easy to find a new one either and this could mean that you struggle to make the repayments for a long time. If you do not make the loan repayments then you will have extra costs and may even have an increase in interest rate. An increase in rates is much more likely if the rates are low, particularly if they are extremely low. Also small changes could make bigger differences. For example, if the rate is 1% and it goes up to 2% this means that the interest that you are paying will double. This could have quite a significant impact on you. It is therefore really important to think about how you will manage should you borrow money and interest rates go up. Think about whether you will have the money to cope with a rate increase.

A Simple Guide to Car Loans—Financing a New Vehicle

While getting an auto loan may seem pretty simple and straightforward, there are some important things to be aware of. It is extremely important that you are aware of how to get one of these loans and what they entail. The more time you take to research auto loans, the better your chances will be of getting an excellent overall deal on one. Financing a new vehicle can be somewhat complicated, so it’s crucial that you understand all of the subtleties associated with doing so.

Your Credit History

There is no question that your credit history is going to have a big impact on your ability to get an auto loan. It is important to remember that even those with bad credit can still get an auto loan, though it usually means having to pay more interest. The better your credit score is, the more likely you are to be approved. Take the time to look at your credit report so you can see if there are any items on there that shouldn’t be. You might be able to slightly improve your credit score by getting mistakes removed immediately.

Your down payment

The down payment is how much money you put down on the loan at the very beginning. The more money you put down, the less you are going to have to pay off over time. It is highly recommended that you put down as much as you can afford to so you can save as much money as possible. If you want to avoid having to pay a lot of interest, you will certainly want to make a decent sized down payment.

The Loan Term

The loan term is simply the amount of time that you will have to pay back the lender. Auto loan terms can be anywhere from three to six years, though sometimes it can be more or less depending on the overall cost of the vehicle and the down payment that is made. If you spread your loan over a longer period of time, you will have a lower monthly payment. You will need to keep in mind that the longer your loan term is, the more interest you are also going to pay.

The vehicle you want

The loan principal is typically lower for a used vehicle because the car’s price is lower, though you usually get a better interest rate with a new car. This is definitely something that you are going to want to think about before making up your mind either way. While buying a used car can be tempting because it’s obviously cheaper, getting a new car will save you money with regards to interest.

Where to get a Car Loan

Most major banks give out auto loans, and you will be able to apply for one online. There are also private lenders that you can get an auto loan from, but we highly recommend that you choose a bank instead. The whole process for getting an auto loan is fairly simple and straightforward, so you shouldn’t have much of a problem. Once you have filled out and submitted an application, you should find out whether or not you have been approved fairly quickly.

Online lenders

There are many different online lenders that you can turn to for an auto loan. One of the most convenient things about getting one of these loans is that you don’t even have to leave your home if you don’t want to. Make sure that you do some research to find a legitimate lender that you can trust. Not all online lenders are completely reputable, so make sure that you take enough time to find one that is.

Conclusion

If you are currently interested in getting an auto loan, it is very important that you do as much research as needed until you get the best possible deal. One of the most crucial things to do when it comes to getting this type of loan is to find the right lender. When you actually take the time to do this research, you should be able to get the loan you need without having to spend too much overall.