Loans can be a way that you can have more things than you could normally afford. However, loans do need to be paid back and they cost money as you get charge for the borrowing. This means that whatever you borrow money to pay for will cost more. This means that sometimes it is just best not to borrow any money. However, in some cases it can be wise to borrow. The decision is not always an easy one, but there are things that you can consider to make it easier.
It is wise to consider what you will immediately get from the money that you have borrowed and the long term gain that you will get from it. If you are considering a mortgage you will gain a home, an investment and rent free living so this could have a very big impact on your life and should have a positive effect on your finances. However, if you are borrowing money to pay for a holiday, home improvements or luxury items then the impact may not be so life changing. It can be difficult to weigh up different lending decisions and it can be a very personal thing.
It is good to start by thinking about how much money you have saved up that you could spend and how much you can afford in repayments. Then you will be able to work out how much you need to and can afford to borrow. This will give you an idea as to whether you can cope with having a loan, before you decide on whether what you are buying is worth getting a loan for.
It is also a really good exercise to find out how much you will have to repay really carefully. Look at your current household finances, how much income you have and how much you spend and whether you will be able to afford the repayments. It is important to think about times of the year when you may have extra expenses and whether you will still be able to manage. Also consider what might happen if the cost of the loan goes up due to interest rates rising and how you will manage if that happens. Only if you are confident that you can afford a loan; should you consider getting one.
Different people have different ideas on when you should borrow money. Some label good and bad debt, with good debt being that which will help you to earn more money in the future such as a mortgage, student loan or car loan so that you can drive to a job. However, others feel that a good debt is one where you have considered all of the options, done lots of research and have made sure that you can afford the repayments. It is wise to fulfil both of these categories really when getting a loan.
Some people use a loan in an emergency. They may have a forgotten bill to pay, have run out of money for food or are under threat of being cut off if they do not make a payment. However, choosing a loan when you are in a panic and worried about how you are going to manage is not a good thing. If you are emotional it is harder to think logically and make the right decision. Therefore it is wise to discuss your problem with someone before you do anything drastic. Speak to a friend or family member or contact a debt counsellor to get help with your problem.
Borrowing money is far too easy to do. It is easy to make a quick decision and get a loan and then regret it in the future because it is so expensive. There are some loans, the ones that are carefully considered, compared cost wise and will help you to improve your life and gain financially in the future which can be worth getting. It is still worth being very cautious as there are many possible problems associated with loans that you need to consider such as the cost, consequences of not paying and managing your money when you have repayments to make. Choosing the ‘right’ specific things to use a loan to purchase is difficult as it depends on personal circumstances but all borrowing decisions should be well researched.