There are various types of loan products that are available for individuals today. However, the ones that are most sought after have remained the same in a while and their popularity still persists.
Disparity in Loan Rates
The most common loans that we see today are those that are related to home mortgage, vehicles, credit cards, and personal loans. The interest rates on loans vary greatly. The loan rates for home mortgage and vehicles remain close to historical lows whereas those for credit cards and personal loans are on the higher side. When it comes to repaying them early, some people tend to take wrong decisions regarding the order in which they must be returned.
It is common knowledge that when one has some extra money in hand, the most prudent thing to do first would be to make excess payments towards the loan that has the highest rate of interest. However, some people opine that doing will not help as the loans with higher rates such as credit cards and personal loans don’t contribute towards equity build up. However, to the contrary, it does help eliminate bad debt faster and leaves more money with them, thus raising their personal equity and financial status. As interest payments on home mortgage also reduce income tax in addition to building up personal equity, the wisest thing to do would be to follow conventional wisdom and eliminate bad debt with the highest rates first.