• Taking out a loan is an alternative to saving money, but there are pros and cons.piggy bank image by Brent Walker from Fotolia.com
  
  Throughout life, there are times you may need additional money. Whether it is to buy a car, a home or pay for tuition, a loan is likely to be the means you use to make the purchase. While loans can be handy for many purposes, they have significant disadvantages to go along with their advantages.
  
  

Personal Loans

• Personal loans are often given to borrowers by banks who feel the customer is an acceptable credit risk. These loans may be unsecured and simply signed for, in the instance of borrowers with good credit scores. Personal loans are advantageous for several reasons. A personal loan typically has a fixed interest rate, meaning that the fluctuating rates found on adjustable rate mortgages and other such loans will not affect how much you pay for your borrowed money. Also, the unsecured nature of this loan means that there is no danger of losing your home or other major property if something prevents you from paying back the money. The disadvantages of this type of loan are somewhat related to the advantages. Because of the increased risk of unsecured loans, the interest rates may be significantly higher than other secured debt. It is logical to shop around for the best rates when deciding to take out a loan of this type. Personal loans may sometimes have hidden costs associated with early payoff or have payment protection insurance tacked on to the loan that will increase the amount you pay significantly.
  
  

Mortgages

• Mortgages are loans that are used to purchase real estate in which the property itself serves as the security of the loan. If the bank doesn't receive payment, they can foreclose and repossess the property. The largest advantage of a mortgage is the ability to purchase and own property without having to have a large sum of money in cash up front. Most people cannot come up with $200,000 cash to purchase a home, but many are able to make a small down payment and set up a mortgage to cover the balance. Another advantage of a mortgage is that the interest paid on these types of loans are tax deductible. It can lower tax liability substantially and even result in big refunds for those who pay high interest. The mortgage will also make borrowing money against the home's equity possible once it is paid down or the home becomes more valuable. The disadvantage is the long-term nature of a mortgage and the relatively large amount you pay for the property, in the long run, because of the interest. Not paying the loan can result in loss of property and a place to live, which is a serious repercussion of getting a mortgage you can't afford.
  
  

Student Loans

• Student loans are typically a good deal, even if tuition rates are not. The advantage is that students entering college who couldn't otherwise afford an education can finance it and get a degree. The loans are also low interest and do not have to be paid back while the student is in school. Also, when the student begins paying back, interest is tax deductible. The biggest disadvantage of a federal student loan is that it is a debt that must be paid. This isn't a terrible disadvantage since all debts should be repaid if possible, but even bankruptcy laws will not allow student loans to be included and they must be paid, even if wage garnishment is necessary.