Friday, March 7, 2014

Examples of When to and Not to Get a Loan


A loan can be a good tool to help people make a purchase when they do not have the necessary funds available. While a loan is great for some reasons, no loan, including credit cards, should be obtained hastily. It is important to remember that when you take out a loan, you are still responsible for repaying the loan, plus any additional amount for interest. It is vital that you carefully consider any loan that you may want to take out to determine if it is the right solution for you or not.

Below is a look at three great reasons for taking out a loan, as well as, three reasons not to take out a loan. Lying in between these two choices are non-loan options which can include alternative money help. Below are some examples of when and when not to take out a loan. 

Reasons to Take Out a Loan


1. Home. The majority of homeowners cannot afford to purchase their home with cash. Instead, they take out a mortgage to cover the cost and then repay the mortgage over the course of ten, twenty or thirty years. This is a good reason to take out a loan because purchasing a home is a sound investment. Just be sure to shop around to find the best mortgage options for you.

2. Education. You may also need to take out a loan to complete your education. Unfortunately, you may not make enough money right now to cover the costs of higher education, but without a proper education, you cannot get a higher paying job. Before taking out a loan for your education be sure to apply for all the governmental benefits available to you because this may reduce the loan amount you have to take out. Also, look for low-interest loans that are specifically designed for students.

3. Car. Whenever possible, it is best to pay for a car with cash instead of taking out an auto loan. However, there are times when you may not have an option and you must take out a car loan in order to purchase a vehicle. This is true if you live in a rural area where public transportation is not available, or you need a vehicle to get back and forth to work. Be sure to keep your car loan payments within your budget limits.

Reasons Not to Take Out a Loan


1. Holiday. A holiday is not a good reason to take out a loan because it is not something you need, but rather something you want. If you want to take a special holiday, create a short-term financial goal for yourself and readjust your budget to help you put some money aside each week or month to go towards you holiday. Before you know it, you will have enough money saved and you will not have to pay any additional money for interest.

2. Gifts. A lot of people make the mistake of pulling out their credit cards or taking out a loan to cover the costs of purchasing gifts especially at Christmas time. Many times they do not even realize how much they spent until the bills start coming in. You should set a budget for purchasing gifts and make a commitment to not go over budget. Try making homemade gifts or only shop when things are on sale.

3. New Furniture. Many furniture dealers offer their customers loans in order to buy the furniture they want. This is not a good enough reason to take out a loan, even if they claim to offer an interest-free loan for a set period of time. Instead, save up your money and only purchase new furniture when you have enough saved.

This list of good and bad reasons to take out a loan, may help you determine when it is a good time to take out a loan of your own or not. Remember that taking out a loan requires a long-term commitment and you will have to make the payments on a regular basis until the loan is paid off. Make sure that you take everything into consideration before making this vital decision.

Try looking at borrowing through an advantage and disadvantage point of view. Reasons for borrowing that are positive include purchasing assets or items that will benefit you in a positive way – education, vehicle to get to and from work or as part of a business, etc.. Examples of a disadvantage is purchasing items/services which will lose value and do not provide any real benefit outside of short-term gain.

2 comments:

  1. This comment has been removed by a blog administrator.

    ReplyDelete
  2. Unfortunately sometimes we face unforeseen circumstances and they come out of the blue very often. Nowadays not always people have enough money or savings to cover the unexpected costs, that's where personal loans for emergency cases can become a good helping hand.

    ReplyDelete

Join 1000's of People Following 50 Plus Finance
Real Time Web Analytics