All About Low Interest Rate Loans

Loans are a part of modern life that most people can't avoid. Whether it's paying for a car, buying a home or financing an education, we often have to borrow money from Peter to pay Paul. Often loans come disguised as great opportunities in the form of low interest rates. Obviously low interest rates are desirable to high rates, but over time even a very low interest rate can turn into a substantial cost.

Student loans are one of the most common sources of low interest debt. These loans are often subsidized by the government and the payments deferred while one finishes school, which allows the debt to silently add up without one noticing the mounting costs. Once one finishes school, lenders often set a very low payment requirement that keeps the loan active form many years, further adding to the overall cost of the loan. That simple student loan of $20,000 at 3% interest can nearly double in cost over the next twenty years.

Often, we are not overly concerned about the loans that come with interest and don't even view them as a debt in many cases. We become so accustomed to paying the small fee each month that it becomes automatic and doesn't cause us worry. Many people set up automatic payments to fund the minimum payment and may not even think about the loan for years as it quietly eats away at your income and potential capital.

Many people intuitively think that it makes more sense to pay back higher interest rate loans first. This tactic is fine if you actually intend to pay off all of your loans and establish a firm plan to do so. The problem is that people often find that they never fully pay off high interest loans such as credit cards. Meanwhile, the interest loan quietly nibbles away. If you think this might be the case with you, go ahead and pay off the interest loan first to get it out of the way. Once this loan is gone, the money you save can go towards paying off your other loans. If nothing else, it will feel good to have at least one loan fully off the books.

This interest student loans are designed around the assumption that one's earning potential will go up after graduation. This is usually the case. The problem comes from people spending their new income on life rather than repaying the loan in a timely manner. Used as they were designed, these loans greatly help struggling students pay their bills while they earn their degrees. But if they are abused, even the low interest rate can quickly lead to financial problems and cost you much more than necessary.