Uses of Loans

• Loans can give consumers the financing they need to purchase high-ticket items.money money money image by Arman Zhenikeyev from Fotolia.com
  
  Some purchases may be too large for consumers to handle by themselves. To solve this problem, many institutions including the government and banks lend money to those looking to purchase high-dollar items like homes or automobiles. While borrowing money should be done sparingly as it is more expensive in the long-run due to interest rates, it is often necessary to make many life improvements.
  
  

Car Loans

• Loans are a popular way of financing car purchases.yellow car, a honda japanese sport car model image by alma_sacra from Fotolia.com
  
  For many people, automobiles are necessary means of transportation. Due to the fact that many cars are simply too expensive to purchase out of pockets, auto loans are a popular way to make up the difference. For instance, a consumer may decide to buy a $20,000 car but only have $5,000 in cash to spend. To solve this problem, the consumer would simply make a down payment on the car of $5,000 and take out a loan for the remaining $15,000.
  
  

Home Loans

• Loans provide a way for people to finance their housing purchase.small house, big house image by Nino Pavisic from Fotolia.com
  
  Purchasing a home in cash is exceedingly difficult for many people due to five-, six- or even seven-figure price-tags. Thus, most people take out home loans in order to purchase a house, before paying it off at interest over a period of years. For instance, a person buying a $200,000 house might place a down payment of $40,000 and take out a $160,000 loan to buy the house. That person would then pay the loan off over a number of years at interest.
  
  Note: Lenders often require a 20 percent down payment on a house to qualify for a conventional loan. For those who can't afford a 20 percent down payment, lenders often require the purchase of Private Mortgage Insurance to protect themselves from those who default on loans they can't afford to pay. Also, the smaller a down payment a person makes, the higher the interest rate is and the more they pay in the long run.
  
  

Student Loans

• Students seeking a college degree often use loans to finance their education.students image by dinostock from Fotolia.com
  
  As the cost of higher education rises, student loans are quickly becoming a popular way to finance a college degree. Prior to enrolling in college, students fill out a Free Application for Federal Student Aid using their parent's tax information. This form will verify a student's eligibility for aid, including student loans from the government (see Resources). Students can also take out loans from private lenders to finance their education.
  
  

Business Loans

• Loans can give small business owners a chance to get started.business image by peter Hires Images from Fotolia.com
  
  For those looking to start a business, taking out a loan is a popular way to get the start-up capital needed to get the ball rolling. Many banks offer small business loans to those looking to get started. The government also has programs to help stimulate the growth of these businesses by working with banks to reduce their risk and get a better deal for borrowers.