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The Pros and Cons of Purchase Loans
Purchase loans are provided by an order for a customer to make larger purchases, usually like a house or car. The loans come with fixed or variable interest rates, and you repay them according to a schedule. Because house and car loans comprise the biggest chunks of debt for many Americans, it’s a great idea to know the advantages and disadvantages of purchase loans.
Pros of Purchase Loans
A notable pro of purchase loans is that anyone, including relatives, friends, banks and credit unions, can give them. When considering a purchase loan, it’s important that a contract outlines the agreement, even if the lender is someone you’re close to.
Another advantage of purchase loans is the versatility it offers with length and interest type. Many loan repayment schedules can be created to meet your needs, whether you want six years for a car loan or a much shorter term. House loans typically come in 15-year or 30-year terms, but other options abound. Just be sure to choose fixed interest rates, in which your interest rate never changes, or try adjustable rates if you’re fairly sure interest percentages will decrease during the span of your agreement. This option can save you a lot of money, but you must be comfortable knowing the risk involved with adjustable rates might not always be in your favor.
Cons of Purchase Loans
One disadvantage of purchase loans is that you often need a down payment and solid credit score, especially for the best interest rate options. However, this con can be a blessing in disguise. It encourages you to save or delay taking out a loan until your financial situation is in good standing. On the other hand, if you follow through with a purchase loan in other circumstances, chances are that you’ll pay high interest rates. So it can be advised that you put as much down on the purchase as your finances will allow.
Another drawback is that purchase loans typically are secured debt — or debt tied to assets, which you could lose if you fall behind on repayment. In a home loan, for example, the lender has the right to repossess the house if you miss numerous payments, even if you’re on your last few years of paying off a 30-year mortgage.
Slipping up with a purchase loan holds the potential for long-lasting negative effects. In addition to possibly losing your house or car, you’ll owe late fees, and the delinquent payments hurt your credit report. In turn, lower credit scores make it difficult for you to qualify for other loans, especially at good interest rates. Try to create a personal repayment plan before you take out the loan so you’re sure you can handle all of the monetary responsibilities.
Help With Purchase Loans
Many Americans struggle to pay off their loans. Our debt consolidation program, which combines debts into one monthly payment at a reduced interest rate, can help. To find out more or to ask about credit and debt counseling, follow the links or call us toll free at 1-800-500-6489.