Secured bank loans most commonly acquired to finance a home, property, car, boat, or other asset have clearly defined terms, including amount borrowed, duration of the loan, interest rate, whether fixed or variable, and predictable tax consequences. The interest, for example, on primary or secondary homes is tax deductible, whereas that for financing a car or boat generally is not. Therefore, home mortgage and home equity loans will be the last debts eliminated in your debt management plan. Car loans are an inevitable occurrence, but loans for luxury items such as boats should be carefully weighed as you gauge your debt tolerance. Debt tolerance is a concept that describes your ability to repay your loans and debts and includes your psychological comfort level.
Unsecured loans come in many varieties and degrees of risk for misuse and abuse.
In today's world, bank and merchant credit cards are the most common. Unfortunately, lenders seem to encourage the use of this insidious vehicle by providing unrealistically high loan limits. Without question, debt balances on credit cards should be kept to a minimum. Banks often will provide short-term signature loans, such as 90 to 180 days, at near the prime interest rate, for urgent or emergent needs. Loan consolidation has become fashionable, as has borrowing from your own insurance portfolio or retirement program.