Are Computer Loans a Good Idea?

Computer loans are typically short-term, secured loans with fairly low interest rates. There are few downsides to this type of loan; however, there are always risks associated with financing any purchase. Computer loans are a good idea for most consumers, but some should pay for the product outright.

Interest Rates

The interest rate on any loan makes it more expensive than simply purchasing the product outright. However, interest rates on small electronics loans can be very low, mitigating this problem. In fact, many retailers will provide computer loans at 0% interest for one year. As long as a borrower pays off the loan in 12 months, there is no charge at all to finance. In this case, the borrower can get the computer without draining a bank account. This is particularly preferable to buying the computer on credit. Credit card interest rates are much higher than in-store financing costs on the whole.

Risk of Default

Borrowers with low risk of default are good candidates for computer loans. Those borrowers have stable salaries and a high amount of savings. Since computers only cost about $500 to $1,500 depending on the brand, it its fairly easy to just pay down the balance with a savings account if the borrower fears default. Borrowers who do not have savings, have low incomes and could not cover this expense in an emergency should avoid taking the loans. This is most common with student borrowers and young people who are not established enough financially to be protected against the possible impact of defaulting on a small loan.

Credit Building

One main advantage of taking a computer loan is the way it helps build credit. Loans issued on short-term bases can be a fast way to boost a score. For example, if a borrower would like to take a much larger car loan in a few years, that borrower should start building credit today. Taking small personal loans, like computer loans, establishes a history of taking and paying down installment debt. The earlier this history is established, the better. In fact, even if the finance costs are high, the benefit may be great enough to justify the expense. A person can boost his or her credit by 30 to 50 points paying off a short-term loan. This can mean thousands of dollars on a mortgage, which would be far more than the financing expense on the computer loan.

Building Assets

All assets count toward a person's total net worth. This includes small assets like computers, furniture and other electronics. If the item could be liquidated to cover an expense, then it is an asset with a given value. A person with a low asset base will not be able to jump right in and buy a car or a house. However, the person may be able to buy small items like computers and TVs. Starting small, the individual will begin to accumulate assets that will eventually serve as the basis for future loans and financial stability.

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