“Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.”_Ogden Nash
Amongst everything we need to survive, money also plays an essential role. We all need it to fulfil our basic requirements and that lead us to work for it. A person with no money can be happy but to retain that happiness you need it otherwise survival becomes a concern. Money can help us to achieve our goals, helps to build our future and makes life more enjoyable but merely having it doesn’t guarantee fulfilment. From ancient days to modern days money has transformed in various ways.
In earlier days, people would exchange their unused goods in place of other goods they need. This system, however, did not provide the transferability and divisibility that made trading efficient. The lack of transferability of bartering for goods gave birth to commodity money, which was a type of currency.In commodity money, gold was believed as a precious metal and physical token of wealth. Eventually, this system evolved into a system of representative money because gold and silver merchants would issue receipts to their depositors which were redeemable for the commodity money deposited. Then appearedfiat money which became the token of people’s perception of worth, the basis for why money was created. After going through so much of evolution, money is now a matter of four functions: a medium, a measure, a standard and a store.
People who held more money than they needed started lending loans to other people who were in need of some extra funds. That is how the concept of loan came into the market. Whenever there was a scarcity of money people borrowed a loan. This was helpful as well as gunshots for many.There is saying that some debts are fun when you are acquiring them, but none are fun when you set about retiring them. Hence, borrowing a loan is not a sin, but not managing it responsibly is!
Most of us are aware of the reasonable ways of borrowing money. But what about the expensive ways? Lets us discuss the 5 expensive ways of borrowing money:
- Credit Cards
- Pawn Shops
- Payday Loans
- Home Equity
- Personal Loans
“Debts are nowadays like children begot with pleasure, but brought forth in pain” _Moliere
- Credit Cards: Credit cards are one of the most expensive ways to borrow money. It is because the card issuers charge much higher rates of interest than other types of credit products. A credit balance can quickly boom out of control. Your good credit card management will go down if payments are not done on time. If you plan to purchase things, turning your credit card into cash, only buy those that you can afford to pay off at the end of the month.
- Pawn Shop: Pawn shops are the most expensive way to borrow money because of their high rates of interest and high fees.Even if they keep the rate of interest low they add a lot of additional charges like storage fee, ticket fee and also charge a fee if you lose your receipt. Pawn shops generally lend money in exchange for receiving certain valuable things as collateral. If you fail to repay the loan, they keep your goods.
- Payday Loans: Payday loans are much more expensive than other kinds of borrowing money. Most of the payday lenders offera quick decision on a loan.They pay loan instantly without much documentation. With a higher rate of interest, they lend a small amount of money expecting a repayment after 30 days. It is rightly said,“Quick to borrow is always slow to pay”.
- Home Equity:It is a type of the second mortgage that you borrow to use your home’s value as collateral to draw out cash. Home equity comes under expensive borrowing as lenders charge high fees and high-interest The lenders pay attention to the loan’s APR. If you roll out these fees into your loan then you will pay a higher rate of interest. And as it is secured by your home, there is a chance of losing it if you fail to make repayments.
- Personal Loans: Personal loans are unsecured loans that do not require borrowing against something of value. It generally provides Loans With No Guarantor which attracts more consumer to borrow personal loans. However, this means that the loans are available with a higher rate of interest. Lenders who provide No Guarantor Loans generally demand higher interest rates. More the facility more will be the interest rate.
Keeping all these factors on ground, we can now understand how to borrow, how much to borrow and which is the suitable one for us. Most importantly to borrow with a responsibility. There are bulks of loan in the financial market of the UK. It is essential on our part to be aware of ourselves beforehand about the loans that we require. It would be better to be a step ahead always.
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