From the course: Managing Your Personal Finances
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Manage debt
From the course: Managing Your Personal Finances
Manage debt
- Debt is something of a double-edged sword. On one hand, it offers you the ability to buy something that would normally be out of reach financially and pay for it over time. But on the opposite side, debt comes with a cost. You're borrowing someone else's money, and for that privilege, you need to pay. The cost of your loan has everything to do with how risky the lender sees the loan. The riskier of the loan, the higher the interest rate, and the higher the cost of the loan to you. So how do lenders gauge risk? First, lenders look at what you're borrowing for. Lenders love it if you borrow money for something of value, like a house or a car. This allows the lender to collateralize your loan using the thing you're buying to back the loan. So if you can't pay back the loan, they simply keep the thing that you're buying. For the lender, when there's lower risk that they can't get their money back, they will offer a lower…
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