Liability

When discussing loans and mortgages, the term "liability" will often arise. Liability refers to financial obligations or what a person owes for goods and services rendered. In regards to debt, a liability can be anything that is incurred by a person who gets a loan from a bank, takes out a mortgage on his or her home, or money owed to a credit card company among other things. If any of these actions take place, the person who owes a creditor is "liable" to that creditor.

Different forms of liability when it comes to personal debt may include bank loans, home mortgages, car loans, and credit card bills. In order to make money off these liabilities, banks and financial institutions charge fees and interest to consumers looking to acquire these services or products. This adds to the liability of the consumer because not only are they obligated to pay off the value of the loan, they must also pay the interest and fees associated with them. Interest and fees dictate whether a person will take on the liability that is being offered.

There are two forms of liability: short-term and long-term. Short-term liability refers to a loan or other service rendered in which the terms last less than a year’s time where as long-term liability is any agreement that lasts over a year. Long-term liabilities include home mortgages or any loan that has a long duration. Short-term liabilities include things such as paycheck advances or credit card payments (since it is on a month-by-month basis). Bank loans can be either short-term or long-term. Short-term agreements typically carry higher interest rates. The reason is that banks prefer to deal with higher monetary loan amounts that are not typically given in a short-term arrangement. Smaller loan requests do not do much for the bank’s profitability so a higher interest rate will be attached to make it reasonable for the bank to conduct business. Long-term liabilities, however, will allow people to negotiate far better rates because the bank will profit by collecting interest over the long life of the loan.

Incurring additional liability for a person who already has a good amount is risky. Many people take on a new liability to relieve the existing debts they face. Before a person decides to take on a new loan, especially in attempt to consolidate debt, they must do their homework. There is much to be said about the advantages of taking on an additional, smarter liability in order to pay off the others that can be detrimental in the long run.

Liability is any money you owe including:

• Long-term liability
1. Home loan
2. Second mortgage
3. Auto loan
4. Furniture financing


• Short-term liability
1. Credit card debt
2. Payday loans
3. Small bank loans