Adults are not always financially literate, but there are considerable benefits to understanding the basics of personal checking, home loans (mortgages), auto loans, choosing a bank, and more. Knowing how to handle one’s money and take out good loans with sensible terms can go a long way toward financial freedom and avoiding unexpected debts or other problems. Personal checking accounts, credit cards, compound interest, and other subjects are important for any young adult to learn when opening their first personal checking account or taking out a major loan. Some have argued that schools are not doing enough to teach students financial strategies and basic know-how, and many young adults today are unsure how to handle a personal checking account or get a good loan. The good news is that learning about money does not have to be intimidating, and some basic knowledge can go a long way when opening a personal checking account or taking out loans. What is there to know?
Taking Out Loans
A major part of adult life is knowing when and why to take out loans, and how to get the best possible terms for those loans. Major loans are mortgages (for houses), auto loans, and credit cards. A person may end up taking out loans of all three types by the time they are 35 years old.
An auto loan is, as the name suggests, a loan taken out when purchasing a motor vehicle. Most car or truck (or even motorcycle) purchases involve such loans, since these vehicles are typically too expensive to buy up front. In occasional cases, that may indeed happen, but for the most part, a car customer will take out an auto loan. Such a loan is requested and approved in-person at the auto dealer when the customer makes a purchase, and staff may help them get a loan approved. Most auto dealers are connected to as many as five to 10 different money-lending services such as banks, and most Americans take this route.
Today, the total auto loan debt is enormous, but that is not something to fear. Such loans are typical and are often essential for buying a car, and better yet, the car customer may choose how long a period to pay off that loan and adjust it according to their needs or current financial status. And as with other loan types, a good credit score helps. A high credit score proves to auto lenders that the customer can be trusted with a loan, and that person is much more likely to get approved for a loan. Higher credit scores may also mean lower interest rates on the loan, decreasing the total money paid by the end of the loan period. Someone with no credit score may need a trusted co-signer to help, and use their own credit score to get a loan approved.
Something similar may happen with mortgages. A mortgage is a loan for purchasing real estate, and often, a mortgage may be a few or even many times bigger than an auto loan. Someone looking to buy a home can approach local mortgage companies and find them online, and here too, a good credit score means both better (as in lower) interest rates, and much better odds of securing that loan to start with. Customers with bad credit may get high interest rates or get rejected for a loan entirely.
Credit card loans are similar, except that the money on the card can be used to buy nearly anything, and the card has a set maximum value on it. The card holder should diligently pay off their debt on time and in full to build a good credit score, and this is helpful for proving to auto lenders or mortgage companies that they are good candidates for getting a loan.
On a final note, young employees are urged to open a retirement fund early on and contribute to it regularly. Over the decades until they retire, constant contributions and compound interest alike will allow that account to grow considerably. The compound effect needs breathing room, so starting this process in your early or mid 20s is a good idea. The account may have well over a million dollars by your retirement age.