The same type of loan can be either good debt or bad debt depending on how it’s used and whether it fits your financial situation. An auto loan, for example, may be necessary if reliable transportation allows you to earn a living. But borrowing to buy a more expensive vehicle than you need can work against your long-term goals because cars typically depreciate in value. Even mortgages, student loans, and business loans can become bad debt if the payments are unaffordable or the interest costs are too high.
