At some point in everyone’s life, they will need to take out a loan. While some people look down on the idea of asking for financial help, lending is almost as old as human civilization itself. It’s certainly nothing to be ashamed of. Everyone at some point will need a loan. With that in mind, below is an overview of the most common things people spend their loan money on.
1. A Home
One of the most common kinds of loans in the United States is the mortgage. According to the Federal Reserve, the amount of mortgage debt in the United States is currently over $13 trillion. While some of that accounts for businesses and farms, most citizens use mortgages as a means to obtain housing.
A mortgage, however, does not give a person funds to buy a home with. Instead, the home itself is lent to the mortgage holder. Once the loan is paid off with interest, full ownership will be given to the homeowner and no further financial obligation to the lender will exist.
2. A College Education
Another thing commonly purchased with a loan is a college education. This is true both for students who take out the loan their selves as well as parents who do it for their children’s benefit. Student loans are in fact their own industry. According to CNN Money, over 40 million US citizens have student loan debt.
Student loans are rather controversial because they are given with the expectation that the student will be able to pay off the loan with a well paying job after college. However, in bad economic times, a college degree doesn’t necessarily equate to a good job. The US government attempts to help students by providing loans for college, known as Perkins and Stafford loans, with very low interest rates.
3. A NewBusiness
Third, many Americans use loans to start their own business. The practice of banks lending money for new businesses goes back several hundred years. The money is lent with the hope that the new business will be successful and the loan will be paid back with interest. Certain very successful businesses may in fact pay off such debt earlier than the minimum dictated by the terms of the loan.
However, not every business proposition will be funded. This is why having a solid business plan and a convincing presentation for lenders is very necessary.