Group Writing Project: Loans

by Kevin on September 17, 2008

Here we are yet again, half a month has passed us by. With the passage of time comes the next Group Writing Project. This month we elected to discuss our personal experiences with loans. We’re opening up the discussion to other bloggers with the Extended Group Writing Project.

Loans equal debt

As the author of a blog called No Debt Plan, you might imagine I am not a huge fan of most loans. Loans equal debt in my eyes. There are some loans that I find acceptable, but wouldn’t it be easier to just pay cash if that was possible?

Here’s a listing of the loans I have experienced in my life:

  • car loan in high school
  • mortgages on our first home
  • student loans for my graduate studies

Loans helped me get into a safe car

My parents insisted I get a safe, reliable car while I was in high school. I saved up about $3,000 and they were uncomfortable with my vehicle choices at that price point. To help me build credit, get me into a safer car, and teach me a lesson about working for what you own they co-signed on a loan for my first car. I paid it off over two or three years while working at the local movie theater as a projectionist.

In this instance a car loan doesn’t seem all that bad. I was able to get into a much safer vehicle with lower insurance costs. I was less likely to be killed in an accident. Yet it was debt. And most people in the working world don’t get car loans because of safety issues, they get them because they want that luxury car or that super fast roadster. For those folks I would say loans are definitely not a good thing. Go buy a used Honda.

Loans enable millions of people like me to purchase homes

The mortgages are obviously the largest loans I’ve ever had in my life. I am just like every other American out there — I would be unable to pay cash for a new home for a long, long time. I intend to write more about buying our first home later this month as we come up on our “anniversary” date. We were lucky and able to get into a house before the bubble burst. If we were searching for our first home today, we could come up with a 20% down payment relatively quickly.

With our first home purchase we didn’t need 20%. We put 5% down. The lender also noticed we had healthy cash reserves, high credit scores, and great cash flow at the end of each month. We were well within lending standards for the debt-to-income ratios. So we’re able to get into the house and not have to wait another year or two to buy.

Then again bad mortgages given to people without credit history, income, or any other kind of qualification has caused this massive problem we are all experiencing these days. So they aren’t all fantastic.

Loans defer the cost of my MBA program

I also have student loans to go through my MBA program. They are in deferral until I get out of the program so that’s a perk. However I don’t really count this as significant loans for two reasons. First, my company is paying for a majority of my program. I get reimbursed after each class and stick the money into our high-yield savings account. I get to earn interest on that money. Secondly, we have the difference between the cost and what my company will pay already saved up. We seem to be in good shape.

Again, loans are debt

You’ve still got to be careful in pursuing loans for anything. You need to make sure you can not only afford the payments, but that you aren’t stretched to the max from the beginning. One small hiccup in your plan could bring all of that debt crashing down on you.

So tread carefully and make smart decisions. Don’t overextend yourself.

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Passing the week. . . | taxguy
September 21, 2008 at 7:06 am

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