There are times when what seems like a good thing is really not so good at all if you look at it more carefully. We are confronted with financial choices every day, from little decisions such as which brand of coffee to buy at the store to huge decisions like whether to refinance our mortgage. Sometimes if you are in a tight spot financially, options can appear that seem like they are tailor made for people just like you. It is often these very options that can end up doing you more harm than good.
Here are a two common things that people in tight financial situations may be offered, and why they are not exactly what you need right now. One scenario that appears in multiple areas of your financial life is the variable rate. You can find them on everything from credit cards to home loans, and while you may intend to close the account or sell the home before the introductory rate period expires, remember what the financial consequences could be if your best laid plans are thrown off track. The loss of a job, an illness within the family, or any one of a number of life changing events could leave you in a precarious financial position on its own, and that situation would become all the more precarious when that variable or introductory rate changes.
Long term car loans may seem great because the monthly payments can be very reasonable. You can choose from cars that you are actually excited about driving instead of just taking the cheapest thing on the lot. Unfortunately, that shiny new car depreciates quite a bit as soon as you drive it off the lot and the value continues to decline as the car gets older. If your car loan is for a term longer than three years, you will be paying a lot of interest on something that is decreasing rapidly in value. If you really want a new car, stick to something where you can afford the payments on a three year loan. Better yet, find a high quality used car and take out an even smaller loan for an even shorter term. It may take a little more effort to shop for a used car, but if you take along someone that knows cars very well and you do your research you can find a great car at a price that will make you smile.
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