3 Situations Where Getting a Loan Might be a Good Idea
For some people the idea of taking on any kind of debt at all is a big no-no. To an extent I can understand why people feel this way. After all, no one likes to pay interest on borrowed money and if you’re not careful with debt then it can certainly spiral out of control very quickly indeed. I personally don’t feel that all debt is bad though and I even feel that there are some situations where taking out a loan could make good financial sense. Let’s consider 3 such situations.
To Start or Expand a Business
I started a business at a young age and I have to admit that I had to borrow a little money in order to be able to do it. Within a relatively short time though, I’d paid the money back and the profits were rolling in. This just goes to show that taking out a loan to start a business can certainly be a good move as long as you have a solid business plan and your business idea is viable.
It’s worth noting here that not all lenders will give you a loan if they know that you are using it for business purposes, so be sure to check this out before you make an application, as making too many applications for credit can negatively affect your credit score in the short term. Also it’s worth looking at peer-to-peer lenders like Zopa, as I know that they are willing to lend money for business use if you are a sole trader.
If you’ve never heard of Zopa before then please do take a moment to have a read of our Zopa Review.
To Consolidate Debts
Another time when it can make sense to take out a loan is to consolidate debts. This is especially true if you are struggling to meet your current debt repayments or are paying very high levels of interest on the debt that you carry.
In these circumstances, taking out a new loan to make your repayments more affordable can make good financial sense, as it could stop you from temporarily ruining your credit report and it could also lower the amount of interest you pay on your debt. It’s important however to make sure that you don’t fall into the trap of taking out a new loan with more affordable repayment terms, only to then take on more debt because you now feel that you can afford to so. This kind of attitude to debt can lead to big debt problems down the line and should be avoided. Instead, if you are thinking of consolidating your debt, do it with the intention of repaying your debt completely and in the shortest time possible, this way you will be able to get out of debt for good.
For more debt repayment tips see our eBook – 10 Top Tips for Paying off Debt
To Buy a House
A mortgage may not be a personal loan but it is still a loan nonetheless. Getting a mortgage is also probably one of the most sound and acceptable reasons to borrow money that exists. As long as you view it as a long term rather than a short term investment, buying a property as an investment for your own personal financial future has proven to be a good financial move for generations. One little rider I would add to this however is that buying a property at ‘the right time’ can go some way to eliminating the short term risk of buying a property, only to then find yourself in negative equity just a few years down the line if house prices were to fall. When is the right time to buy? Well, if it were possible to know this 100% then we’d all be rich, wouldn’t we?
As we can see then, there are definitely times where taking out a loan can be a good idea. It’s important though that whenever you borrow money you do so in a sensible way and with a long term plan in mind.
Do you think that there are situations where getting a loan could actually be a good idea?