Article  The Yin and Yang of the Loan: How Much is Too Much? One of the most basic financial instruments out there for the average person is the loan. They can be effective tools which benefit you or they can be something which is abused and causes considerable problems. How one uses a loan is up to them but, their history and their ability to maintain and repay one will affect their financial health. One of the loans that most people are familiar with are the type they get by using a credit card. A credit card is a type of loan that one can continually add to. This line of credit has been, historically, easy to get and it they have been causing people a lot of problems because they misused them. People's behavior seems to indicate they do not understand that these have to be paid back. Not only are they loans, they are ones which, for the most part, have large interest rates and they can be used for exceedingly mundane items such as groceries. If someone was given the option of buying some sliced cheese and bread with a credit card that carries a 23 percent interest rate or with cash, it could be argued everyone would choose to purchase the goods with cash. After all, they are not paying over and above their actual cost. However, the credit card somehow seems to eliminate this rational behavior as people are willing to charge almost anything. While they may gain some immediate satisfaction, they are agreeing to pay more for those items. As they keep purchasing more and more, the final costs become even more extreme. Mortgages are another type of loan which has been abused in the past. While the circumstances behind their abuse are different than the misuse of credit cards, they can also provide a valuable lesson. Regardless of what the predatory lenders may have told their customers, those same customers should have more closely examined what mortgage they could realistically afford. If, at any point, the mortgage payments become more than what one could afford, the mortgage is not one to take even if you feel confident or the bank tells you otherwise. The practice of predatory lending by the banks has lead to one of the greatest financial crises the world has ever seen. Banks abused this credit in their attempt to maximize their profits and many people have suffered as a result. Had those consumers done more research and been more skeptical of the banks' claims these losses would have mitigated. Having already gone over a couple bad examples, a loan can be good financial tool. A good mortgage allows someone to own a home and helps with income taxes. Personal ones can be used for various needs but they do tend to have higher interest rates. Consolidated types are a product which can provide an extremely beneficial service by taking a number of bad or out of control loans and putting them into a reasonable product. By being intelligent, a person can effectively use one to improve their life and create a healthy financial outlook for themselves. Obviously, loans serve a valuable service. While they do allow consumers to purchase items they want or need or, perhaps, see them through a time of hardship, they can also be abused. Not only can a consumer abuse a loan as in the credit card example, banks can abuse them as in the case of predatory lending practices. The objective of every consumer is to closely examine the terms of their loan. Look over the fine print. Then, make sure you can handle the payments. Most of all, make sure you can carry a healthy debt load. If not, take a step back and look for ways you can improve your situation before you take out that credit card or mortgage. Category Finance Author Anonymous Add To Favorites Print This Article Email Article To A Friend Post Comments   Rate This Article (0) 1 - Poor2345 - Good678910 - Excellent Added On 11-19-2009