When it comes to borrowing money, the single most important factor to consider is the interest rate. You can forget else everything except this number. It is essentially the cost of borrowing, usually expressed as a percentage of the principal amount. The rule of thumb is to avoid high interest and find low interest whenever possible. You will be doing your future self a big favour by being financial astute today. Below are some of the benefits of low interest rate loans:
Easier to Pay
Imagine having to pay back a loan at 50% interest per annum. If you borrowed $100 from the lender, then you would be obligated to pay him back $150 at the end of the year. This might seem rather trivial, but what if the loan amount was $10,000? Then the amount owed would be $15,000. This hurts your wallet quite a bit. What if the principal was $100,000 for a fancy car? Then you will owe $150,000 at the end of the first year, and much more the year after that. Now consider an interest rate of only 5% for all of these loan amounts. $100 will be $105, $10,000 will be $10,500, and $100,000 will be $105,000. It is always easier to pay debts if they were acquired with low interest.
Larger Loan Amounts
Since the rates are low, you can consider borrowing a larger amount that you would if you were faced with high rates. The cost is within reason, after all, so you should be able to cover them once you get your salary. Most workers can also expect to get a raise each year so their ability to spend money should increase with time. As long as the interest and the income increase rates are not so far apart, borrowing should be alright. It is often unavoidable when it comes to vehicle and property purchases anyway.
Longer Terms Feasible
As illustrated in the examples above, high interest can be crippling with the way that they grow per year. The trick to settling them if to pay them back in full as soon as possible. You cannot give them the chance to grow or else the whole thing can snowball into an unmanageable burden. However, low interest loans are a different story. You can definitely extend these for several years or even decades if you have to.
Always compare rates between different lenders to get the best deal.
