Most of us get our basic schooling for free, usually up to the age of eighteen years old. Then higher education tends to be something that has to be paid for. This can vary a lot from country to country and some will offer some free education particularly for those on a lower income. However, if you do have to pay for your education, you need to work out whether it is worth doings so or not.
The idea of getting into debt can be scary for a lot of people and the fact that university costs so much money and then as well as the price of the course and resources there is often living expenses as well to pay, means that it can be a very high amount of money to have to borrow. If you took out a normal loan for this, the interest could pile up over the years that it take sto pay it back and it could be extremely costly. However, this will depend on the type of loan that you get.
If you are entitled to a student loan then you could find that you will be pretty well off. Student loans in the UK are organised by the government and at the moment the rules are set up so that repayments do not need to be made until earnings reach a certain level and then they come out of the tax code. This way of organising it means that really you just pay more tax to repay the education rather than actually paying back a loan and how much you repay is determined by your income. So if you are on a low income you will not have to pay any back at all. After thirty years the debt is wiped out, so unless you have been a high income earner for the whole of those thirty years, the chances are that you will not repay everything anyway. This includes the interest on the loan which over three quarters of students are unlikely to repay.
However, some people will not be entitled to a student loan. These will be those that have already had one or who had a grant in the days before student loans were available. Also loans are only available to cover four years of study, so you will not be able to get them to cover the cost of a PhD or a second degree. This means that if you want to pay for these you will have to look for a Career Development Loan. These are specially designed to cover a course of study that will lead to a career improvement. They have high interest though and do not work like student loans as they have regular repayments and you have to pay the full amount back in full regardless of whether you are earning. So as soon as your course ends you will be expected to start making the repayments on the loan. This can be expensive and will also affect your ability to borrow for other things, such as a mortgage as those loan repayments will be considered when looking at this as well as income.
Some people decide to save up and pay for their education that way. They may be lucky enough to have families that can help them out or they work for a while and save up first. This can be a great way to avoid borrowing but it is something which is not an option for everyone. A student loan, can be better than saving up as you may not have to repay all of it and so it could be better to go with this option rather than paying it outright anyway.
It is worth considering whether you do think that the education is worth the loan though. However, you are paying for it, you need to decide whether you think that it offers good value for money. Think about what the course offers and what opportunities it will provide you with. Many people are not turning to vocational courses as they are sure that they will get a job at the end of the course and feel that this will be the best way to ensure that they make best use of their degree.
Cars can be very expensive and even ones that are reasonably cheap can still cost more than many people can afford. This means that many people will use a loan to pay for a car. It can be difficult though to work out the pros and cons and work out whether it is a good idea to do this.
If you already have a car, then whether to buy a new on is a tricky decision. If yours works well and is fairly cheap to run then you will have to decide whether you actually need a new car and whether you can justify the cost. If you have a car that is costing you a lot of money in repairs then you may decide it will be better to get a replacement than keep paying for repairs. If you have no car and need one, perhaps for work or other vital things then you may also feel that the cost is worth it.
If you have some savings, then you should see whether these will be enough to buy a car. It can be tempting to think that your savings should be kept but they will earn a lot less interest than you will pay on a car loan. It could be worth using them either to pay for it or towards it so that the loan costs less money. Many people do not consider the cost of the loan. However, it is worth calculating how much this will be. If you add up the cost of the monthly repayments and take away the sum that you borrowed, you will know how much it costs. Remember to add in any administration fees or any other charges that you have to pay to set up the loan. Once you see how much the loan costs you will be able to decide whether you think that it is worth the cost of the loan to get the car.
There are other things to consider as well as the cost of the loan. Firstly it is worth considering how much you will have to pay towards other aspects of car ownership. If you already have a car you will be well aware of the tax, insurance, MOT, servicing and repairs that tend to need doing but with a different car these may have a different cost. You may find that you have to pay more, particularly if you are getting a bigger car, a newer car or one that is sportier. Of course there is also the price of the petrol, which could go up if you have a less efficient car.
As well as all of these expenses, you have to consider that you will need to find the repayments for the loan each month. You need to make sure that you will have enough spare money available to make those repayments. If you do not then at least you will have additional fees to pay and at worst your will have your vehicle taken away. Even if you can make the repayments, it is worth considering how you will need to change your lifestyle in order to do this and whether this is something that you are prepared to do. It is also worth thinking about what might happen in the future and whether you will continue to be able to afford the repayments even if your circumstances change. In the past you could easily assume that your salary would increase over the years and you would become better off. However, these days pay rises are rare and often not in line with inflation and so costs will tend to go up but wages not so. This means that you need to be prepared to find it more difficult to manage in years to come and think about whether this is something that you will be able to cope with. You need to think about what might happen in your life during the course of the loan and whether it is something you are prepared to take on in light of this.
Also consider whether the amount you are planning on borrowing is a sensible amount or whether you should consider borrowing less money and choosing cheaper car.
There are many types of loans and some you will be able to choose how long you take to repay. You might be able to negotiate a monthly repayment amount or you might have a loan where repayments are flexible; such as a credit card. If you can choose how long you take to repay the loan, then it is a decision that you need to make very carefully. It may seem a really good thing to be able to do, but you need to consider many things including two main factors.
The cost of a loan is not so much to do with the interest rates or charges but how long you have the loan for. This is because loans usually charge interest monthly and the longer you have the loan the more often those monthly interest charges are made. Obviously comparing similar loans and getting the cheapest is worthwhile, but if you If you add up how much a loan would cost if you took it out for a year compared to two years you will soon understand what an enormous difference this makes. This means that the sooner you can pay off a loan, the cheaper it will be for you. So whether you have borrowed money to buy a house or to pay for some groceries, you will save money if you pay it back more quickly. Obviously the amount you save will depend on how much you borrow, the interest rate and how much more quickly you pay it back. Therefore when you are comparing different loans do not just look at the interest rate. Instead it is much more sensible to consider the cost of the loan in total and compare that to see which one is the cheapest.
However, it is important to be realistic about this as well. When you are considering how long you need to repay a loan you need to make sure that you can afford the repayments. If you make the time the loan lasts for, too short, you will find that the repayments will be too high and unaffordable. You might be able to afford to pay a mortgage off in twenty five years, rather than thirty but would be unlikely to be able to repay it in ten years, for example. So you need to be realistic. Make sure that you calculate how much you can afford to repay each month. Look at the amount of money that you have coming in and going out and see how much you can afford to repay. Then consider whether this is a realistic amount for you to always be able to afford or whether you need to pay it over a longer term. It is worth checking to see whether you can make overpayments on the loan. If you can, then you will be able to pay in extra when you have extra money available to do so, rather than making the regular repayments higher than you can afford. You need to consider how you will manage if for some reason you had less income or higher bills as you would still have to make the loan repayments.
It is quite a balanced decision that you need to make. You have to make sure that you can afford the repayments and even if your circumstances change you will still be able to pay them. However, if you make the term too long you will end up paying more money for the cost of the loan overall and this could be unnecessary expense if you can afford to pay more. A compromise is to arrange the loan so that you can make overpayments. However, you need to be self-disciplined so if you do have spare money you pay it off the loan rather than spending it on something instead. This is not always very easy. So making the repayments quite high over a shorter term is a good idea, leaving some leeway in case you find it difficult to manage the repayments. You should then be able to get the cheapest loan that you can but with repayment amounts that are affordable for you, even if your circumstances change a bit.