So, you want to go on a holiday with your family, even though you’re running low on cash. You have a family medical emergency and you’re going to need access to cash. So what determines when is it a good time to get a loan?
It’s OK to take out a loan as long as you do so for the right reasons, and for as long as you pay for it without jeopardising your long-term financial position.
If you borrow for the wrong reasons you may not be unable to pay for your debt on time, resulting in finance charges and interest rates.
If you still are not sure if you have a good reason to take out that loan or not, here’s a guide to help you.
To cover emergencies.
When someone has to go to the doctor, or if it’s a life-and-death situation, then go ahead and borrow money. Find the lowest possible interest since your debt levels can rise quickly especially for medical expenses. Also, find ways to bring down your medical-related expenses such as choosing a less expensive hospital.
To purchase a major asset.
If you want to buy a car, it’s may be fine to take out a loan for as long as you have checked out your financial capacity to pay for this over the loan period. Always do your research to find the best deal.
For education fees.
Your goal in this case is to ensure that your child finishes school or university. Then, assess why you could not afford paying for the education fees in the first place. If you must borrow, make sure you pay it off in a year or less.
NOT SO GOOD REASONS
To help with day-to-day needs.
If you need to keep borrowing money to make ends meet, then it means that you probably aren’t living within your means. If you keep on borrowing money, you will end up in a debt hole that you cannot get out of. If you are in this situation, find a long-lasting solution to your situation by cutting down your expenses drastically, or finding additional income sources.
It’s surprising how some people borrow money so they could use it for high-risk activities such as gambling, reasoning that it is better to lose borrowed money than money you have earned. This is flirting with disaster. In the end, you would end up owing money, and this will impair your credit rating and financial standing for many years in the future.
When you can’t afford to pay for your debt.
When you already have too much debt, don’t take in any more. This is going to cause you additional problems. Instead, sell some stuff you don’t need, or talk to the people or institutions you owe so that you can work out a repayment deal under new terms. Cut your spending so that you are able to pay off your debt as fast as possible.
To make an impulse purchase.
If you can’t afford an item, then you shouldn’t borrow money to get it. We all want the latest new mobile hone but often we don’t have the funds for it. Don’t borrow money if you can go without it.
Always remember that taking out a loan is a serious responsibility. If you cant pay for the loan then this may affect your credit rating making it difficult to get loans in the future . In summary, alsways make sure you have thought things through adequately and have assessed your financial situation before taking out a loan.