What are the worst types of Loans?

The worst types of loans are installment loans, auto loans and mortgage loans. Installment loans are personal loans that don’t decrease until they’re paid of in full. Example if you get a personal loan for $15,000 and you’re forced to pay $500 per month for 5 years that’s what I call an installment loan. An auto loan qualifies as an installment loan however a car can be considered an asset and financing a car can be sold to someone else. Auto Loans are still horrible.

 

Mortgage loans in my personal opinion should be avoided, if you can get a line of credit mortgage or a mortgage that decreases every time you pay principal those are the mortgages you want to purchase. With that said let me point out that I’m writing this in 2016 and the rules may have changed once you’ve read this.

The reason Installment loans should be avoided.

Loans that charge fixed amounts per month are like paying rent and a person should only engage in fixed payment loans when that person is cash flowing from that loan, meaning installment loans only make sense if you’re in business. People talk negatively about credit cards all the time, but if you ask me credit cards are the best form of credit second only to lines of credit. Lines of credit decrease when you pay it, and there are times when you can borrow $30,000 in a line of credit and only pay $300 per month and remember the more you pay down the principal the lower the amount you pay, plus you can always pull money out of the line of credit, similar story with credit cards.

 

Once you’re on the installment loan treadmill it’s really hard to come off, because you’re basically a slave for a period of time and the benefit you’ve received is usually long forgotten. Bottom line here if you know how to manage debt stick with credit cards and lines of credit.