When people talk about loans and debt, it’s usually how much they pay a month, how high their interest is, or how tired they are of having debt. It’s understandable. Debt is like a weight on your shoulder slowing you down.

But loans and debt play an important part in today’s world. Without loans, we wouldn’t be able to do many things, like buy homes and cars when we need it or have financial flexibility. Better understanding of loans and debt can ensure you use it properly to better you life.
 

The Good: Buying Things You Need But Can’t Pay For
 

Loans give you financial flexibility to make purchases you can’t pay for right now. This includes short term purchases made with a credit card and long-term purchases like cars and homes. 

With loans, we are able to move our lives forward on our timetable. Could you imagine having to wait to buy a home till you had saved up enough? In today’s world, it would be nearly impossible. Instead, we have the ability to buy now and pay it off over time.

This does come with a word of caution though. Don’t buy things you can’t afford. Having too much debt can drag you down into bankruptcy and ruin your financial future. 

This can include many different types of loans, many that Pioneer offers, such as:

• Mortgages
• Auto Loans
• Credit Cards
• Personal Loans
   

The Bad: Having to Pay Interest
 

Loans are not a charity, it’s a way to make money. That is where interest comes in. Interest is a percentage of your loan you pay alongside the original amount you borrowed.

On any loan you take out, you will have to pay interest. With credit cards, you only have to pay interest on debt you have after the first payment, so if you don’t pay it all off in a single month, you’ll be charged interest. On other loans, you have a set period of time for the loan and interest that is added on top. 

Interest is what makes debt truly rough. Depending on the interest rate, you might end up paying a truly staggering amount on your loan because it just keeps building over time. It’s best to get as low an interest rate as possible and pay off the loan as quickly as you can to avoid losing more money to the interest.
 

The Ugly: Some Lenders Take Advantage of People
 

In the world of finance, there are sharks swimming in the water hunting for easy prey. These predatory lenders look for the ignorant, desperate, and scared and try to take everything they can from them.

A common predatory lender are payday loans. People come to them when they are in desperate need of money and can’t wait till their next payday. So, these lenders will give them a short-term loan with a very high interest rate with the “expectation” the loan will be paid off when you get paid. But between the loan, interest, and other life expenses, you can’t reasonably pay off the loan. So you just dig deeper and deeper into debt because you can’t ever catch up.

But predatory lending doesn’t always come in the form of sketchy payday loans or easily identifiable scumbags. Even well established businesses can try and take advantage of you through loans. For example, you are trying to buy a home and get a pre-approved for a mortgage. What they quote you seems a little high, but you think if the lender says it’s good, it must be, right? You eventually buy a home with that higher amount, only to find out later it’s out of your budget and you are stuck in a home you can’t afford.
 

Good and Bad: Credit Scores Influencing Loans
 

Prior to the invention of credit scores in 1989, loans were given solely on your income and personal history with the lender. Starting in the 90s, credit scores became popular as a way for lenders to determine if someone was trustworthy with credit. 

The good of this? More people could access their credit much easier. This went alongside credit cards becoming more accessible and could apply for loans at more places than just your bank. It also meant that having a lower income didn’t automatically disqualify you from getting a needed loan. If you have a high credit score, you can expect lower interest rates and favorable terms when applying for a loan.

The bad? Credit scores are fickle and hard to understand. Making a few mistakes can tank your score and lead to either very high interest rates or being completely denied important loans. Hurting your credit score is very easy, but building it back up is very difficult. 

If you are struggling with building your credit, Pioneer’s Credit Builder Loan is what you need. It’s a simple financial tool to help grow your credit score.

Learn more about Credit Builder Loans