why families borrow money

Have you ever encountered people who are allergic to borrowing? They're out there, and they often spout odd reasons to support their beliefs and treat debt as a form of financial cancer. In reality, many financially responsible people borrow money every day for all sorts of reasons. In the modern world, it's safe to say that indebtedness is almost a necessity, as long as borrowers know how to handle the responsibility.

Few working adults can afford to purchase a home for cash, or a new car for that matter. Nor can middle-class families afford to send one or more children to college without taking out a loan. The upside of the situation is that when people repay loans, they can potentially improve their credit scores and qualify for low-interest cards and loans in the future. Why do families borrow? In addition to the obvious need for acquiring a home, other reasons include purchasing vehicles, investing in rental property, to cover graduate degree tuition, or to finance health-related emergencies. The top five reasons include the following below.

To Buy a First Home

Perhaps the single most common reason families borrow is to pay for a first home. Often, for second and third houses, people are well off enough to pay cash and avoid borrowing altogether. But, for that first residence, the vast majority of buyers use a mortgage loan. The good news is that timely payments on a mortgage are one of the fastest ways to bolster personal credit scores. Additionally, homeownership is a far better alternative to paying monthly rent on an apartment or rental house. People who decry any and all indebtedness often overlook the fact that rent payments are essentially wasted money. The capital doesn't build up equity or improve credit ratings.

For Graduate Degrees

Getting a graduate degree and financing it via a private lender is one of the smartest decisions a degree candidate can make. Besides the fact that few can pay cash for a grad degree, getting graduate loans through private lenders is one of the simplest ways for gaining access to reasonable terms and rates. Plus, if you ever have a hard time paying off your debt, you can always refinance student loans. From private debt consolidation to Parent Plus Loan refinancing, there are plenty of options out there.

The upside of a grad diploma is a significantly higher level of lifetime earnings. In fact, those who hold business, law, engineering, and science diplomas from grad schools tend to earn much more than their counterparts who did not attend graduate programs in their chosen fields of study.

To Purchase a Kid-Friendly Vehicle

Growing families often discover the need for a large vehicle, like a truck or SUV, that accommodates parents and children to and from school, music lessons, and sports practice. These days, larger vehicles come with rather hefty price tags, which is why so many moms and dads choose to finance the purchase. Research auto insurance tips to save money so you can do your best to keep your new vehicle costs as low as possible.

To Buy Investment Property

If you want to take advantage of a deal on a piece of investment property, like a rental home or business office, borrowing is about the only way to go. In some cases, it's possible to earn much more from the investment than the cost of interest on the loan you took out to cover the purchase price of the property.