Types of Loans
The Loans can classify in these type Like the good the bad and the ugly
The good Loan
Good loans like home loans are ones that build useful assets. The home is one of the basic necessities of life and everyone likes to own one.
And since they usually require a much higher investment as compared to one’s income, taking a home loan becomes a must. But that’s fine as we are acquiring something useful, and which will last us for a lifetime.
Similarly, vehicle loans also meet a very important need. They give a convenient means of transportation. Even though the interest rates are higher than home loans – around 12-15 per cent pa and there are no tax benefits, they still classify as good loans as they build useful assets.
The bad Loan
Personal loans are bad loans. They are usually utilised to buy things like television, washing machine, computers etc, for your vacation abroad. So, from the ‘need’ perspective such loans are not essential like a home, education or vehicle loan.
Therefore, such loans are bad loans and preferably avoidable. Though, given the easy availability of such loans and increasing personal desires, it can be a fairly tough task to keep away from them.
The ugly Loan
Credit card debts are the worst of the lot. They are the ‘Ugly’ loans and are very expensive. The typical interest rates on such debts could be around 24-36 per cent pa and maybe even more. This is simply too high a cost to pay.
Debt, especially the bad and the ugly one, has caused many disasters in the US and the same trend is being increasingly seen in India too.
The bad and ugly loans not only destroy financial lives, they play havoc with one’s personal life and relationships too.