When Is Taking A Loan A Good Idea?
Loans are an ambiguous topic. Regardless of the type of loan you choose to take, there will always be pros and cons attached. And, everyone you speak to will have their own opinion to confuse you even more. Therefore, it’s always appreciated when you don’t have to beat around the bush to get the answers you seek.
So, without further ado, let’s touch on a list of loan types and discuss when taking a loan is a good idea…and when it probably isn’t.
Possibly the most common loan on the list, home loans are seen as useful. This is because there’s no other way to afford a house without taking a loan as the majority of us were not born into abundant riches.
Therefore, taking a home loan is a good idea if you have the income to pay it back, and the maturity to own and maintain a house. Typically, home loans are only granted to people the lender believes they can trust. Which means if you’re not in the right place financially and emotionally for a home loan, your lender won’t let you make that mistake.
Car loans are a great idea if you’re seeking to afford a car without completely depleting your savings account. You can essentially buy your new car without putting a cent of your own money down. Borrowing to buy a car is also a great way to build good credit, provided you make on-time repayments.
Keep in mind, however, that buying anything with a loan will make it more expensive in the long run. Until you make your last payment, the bank owns your vehicle. If you believe that you could miss repayments, this may not be the move for you. The other issue with cars is that they begin depreciating instantly. Which, at one point, might mean your repayments are worth more than the vehicle. Consider buying second hand with upfront cash to avoid this.
If you’re looking for quick cash loans that you can use for whatever you’d like, a personal loan is an option for you. Personal loans are typically fast, paperwork free, and completed online with a private lender. It’s a good idea to take a personal loan if you can afford to repay quickly and you are using it to cover a renovation or extend a holiday.
Due to the high fees and interest rates that usually accompany personal loans, you should consider your financial position before taking one. If you are already in some debt that you’re struggling to manage, this may not be a good option for you. Likewise, if you don’t have a regular income, it’s best not to apply so that you don’t risk hurting your credit.
There are multiple types of investment loans on the market currently. However, the two most common are property investment loans and margin loans, which are used for stocks and shares. As with regular home loans, property investment loans are required in most circumstances. Overall, though, if you play your cards right when taking an investment loan, your investment may make a solid return, allowing you to pay your loan off faster if you choose.
Problems arise with investment loans when losses are made on your investment. Aside from this, investment loans typically come with high rates which make your loan more significant. If you don’t think you have the backup funds in case of an emergency, it may be worth thinking carefully about taking an investment loan.
Possibly the most devious on the list, payday loans have a pretty bad reputation. Most of the pros of payday loans revolve around speed. Fast, same-day transactions, with low criteria for approval. This is great if you know you are reliable and that you can pay it back.
If you can’t pay it back fast, however, then it becomes a problem. Payday loans typically have the highest interest rates on the market and make it very easy for you to become trapped in a debt cycle. Which means that you have to take another payday loan to pay the original and it goes on and on. Only take a payday loan if you are sure you can pay it back, fast.
Using a loan to consolidate debt
The final type of loan to be discussed crosses the board. You can take a loan for consolidating any existing loans you already have. You can consolidate your loans if you have multiple debts you would like to combine to make them more manageable.
It may be worth considering your other options first as consolidating comes with its risks. Try talking to your mortgage and credit providers first, because they may be offering flexibility for hardship. Another option is to refinance a loan to get the best deals. If you have done all your research and know that you will be paying less by consolidating, then this could be an option for you. If you are unsure, speak with a financial advisor first.