Borrowing money or debt is never considered a good resort. However, at times, it is the only way to afford a big-ticket item. The trick is to know how to repay the loan on time and how not to make it a financial burden. Here are some examples that can be categorized as good loans and few others that are bad ones.

Good loans

Home loan:

In the recent past, the debate over ‘buying versus renting house’ has been grabbing people’s attention. If you have a home, then buying another one as an investment is not the best decision. But if you are living on rent, the same makes a lot of sense. Usually, we don’t have huge savings or investments to make such purchase. At such times, availing home loans is a good idea and the repayment time can be stretched up to 20 to 25 years. Home loans are always tax efficient.

Educational loan:

Today, all banks provide loans to pursue educational or technical courses. In most cases, the repayment process starts after the student concerned starts earning or after he or she finishes the course, whichever happen first. Also, educational or technical course loans are tax efficient. 

Apart from this, pursuing a good course enhances your possibility of finding a better job. But it is necessary to choose the right course.

Business loans:

If you are trying to start or expand your business, taking a loan makes absolute sense.  It is not advisable that you put your savings into a business account. At the same time make sure not to use this money for personal use. But choose rightly what you are investing in. 

Borrowing to pay debt:

For people who are in debt, borrowing money at a lower interest to pay off loan is good option. Though keep in mind, that it should never be the other way around.

Bad Loans

Personal loans:

They are often referred as the worst kind of loans. At 12% interest rate, they cost you much higher than you count. If you have availed for a personal loan, then you should target to repay that first. In fact, if you have any money in spare put that out to repay the amount.

Credit Card:

Same as personal loans, they are considered as worst kind of debts. Like personal loan, interest rate is quite high. If possible, try to keep away from credit cards and use it for small transactions.

Car loans:

Cars are depreciating assets and their resale value is said to be nominal. Hence, buying a car that on loan is not advisable unless it’s an absolute necessity. If you have bought one, try to repay the loan within three years.

This is because by this time we decide to upgrade to a new model and the resale value is still there.  Accordingly try to calculate how much you can afford to pay as its EMI and then decide on which car to buy within that range. 

Consumable good:

Like car, never borrow to spend on consumable goods like clothes, furniture etc as they hardly have any resale value.