Loans
/If you’re here, you’ve got a decent understanding of credit cards, and the kinds of things you can buy with them. Great job! As a refresher, we usually use them to buy things we might find at a normal store: clothes, groceries, maybe some electronics.
Carl pays for his credit card balance with another credit card. He pays for that credit card with another credit card. Don't be like Carl. Only spend what you can afford.
Generally, the price of these items altogether are less than the credit limit, which itself is usually a couple hundred or a couple thousand. But later on in your life, you’ll be making larger purchases - like a car, a house, maybe tuition for college - than you can fit on a credit card, and sometimes you need to make those purchases now, even if you don't have the cold, hard cash to make the entire payment.
What can you do? One popular option is getting a loan from the bank. With loans, you borrow all of the money you need for the purchase at once, then agree to pay it back over time. Of course, just like a credit card, you need to pay interest for borrowing all that money, but the interest is usually a smaller percentage of the total you borrowed, compared to credit cards. When looking around for the best loans, it’s important to keep an eye out for the lowest interest rate. Let’s talk about what you might need to do before even going to the bank and asking for a loan! One extremely important thing to keep in mind, even when you’re not thinking about getting a loan, is maintaining a good credit history. Whenever you have small credit card payments, for example, always pay them back quickly and fully. Over time, the companies that track your credit history will show that you are trustworthy enough to get bigger loans. So when you finally reach the point of applying for a loan, banks will be much happier to trust that you’ll pay them back.
When you take a loan, you can sometimes choose the amount of time you’re willing/able to pay it back over. The longer the time, the smaller the individual monthly payments (think about paying back a $50 loan over 5 weeks vs. 10 weeks). But beware, the total cost of the loan will be higher if you pay it back over a long period of time, because you’re going to be paying extra interest - that’s why it’s important to borrow only what you can afford to repay, because if you stretch out the amount of time you use to pay off a loan, you’ll be spending way more than you want to. Follow these steps, especially keeping track of your credit history and making your payments on time all the time, and loans won’t be a hassle!
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Topics to explore if you found this article easy: loan sharks, NINJA loans
Sources:
Can You Pay a Credit Card with a Credit Card. Stock Image. www.doughroller.net/wp-content/uploads/2012/08/Can-You-Pay-a-Credit-Card-with-a-Credit-Card-648x364-c-default.jpg.
Curriculum: Wells Fargo Bank. "Loans." Hands on Banking Instructor Guide, 2013.