When opting for loans is a good idea

People usually don’t recognize the importance of loans. They have it because the banks allow them to get loans. If you look at the economic crisis that we are in today, there’s one aspect that comes into reckoning – loans. The real estate fallout in the US, which eventually, led the world to suffer, is because home owners were unable to understand the extent of a loss if they fail to repay the housing loans. 

Finally, when people began losing their jobs, they saw what was coming. Foreclosure took place, price of houses plunged, banks that gave loans suffered enormous losses. Some banks even had to shut down as they failed to analyze the outcome of what happened.

 What do all these teach us? 

Never take loans unless you need it. I remember, suggesting someone who had come to me looking for advice before opting for a loan. And he said, ‘my needs never end”. And I am sure, most of us are so tied up with needs, which makes us look for sources outside of our income boundaries. 

To go for loans, when your back is against the wall, you or your family member had suffered a serious crisis, your need for additional sources of funds are perfectly justified. But many of us, look to use loans, even though, we don’t need this extra cash. For many, loans are like an income source, they love the idea of having that extra liberty to splurge on luxury items, or to satisfy their long unfulfilled desire. 

There are circumstances, when loans could be an ideal way to save taxes. Housing loans, for example, can help you save taxes. It keeps your expenses down. You can easily organize your budget according to your needs. While there are certain conditions that should be met, yet, such loans offer double bonanza. It is a way government keeps the flow of money in the loop.

You also have short term loans, or instalment loans, which are prevalent these days, but you should exercise caution as it might come with a higher interest rate. Installment loans have better rates, only when you have it online. However, you should take such loans if you are truly in a need. 

What many don’t realize is they lose a substantial portion of their savings on paying interest, which they may have used it to increase their savings. Generally, loan takers also develop a habit of depending outside their income, on additional sources of funds, which doesn’t help them in the long run. Your habit of spending also spreads into other areas of life.

It makes you always look for other ways of accumulating funds. You also don’t want to check your spending instincts, because you have never tried for it. Finally, you also don’t want to do that extra push to earn a little extra, which could easily have solved your financial problems. But since, you now get loans so easily, you get it, without worrying about paying back. The best way, therefore, is to assess your needs and opt for loans.

Author: Peter Hans.