The Best And Worst Times To Take Out A Loan

There are good times to borrow money and there are bad times to borrow money. This post explains when you should and shouldn’t take out a loan.

The Best Times to Borrow

Making a secure investment

There are times when borrowing money can allow you to make secure investments, which could put you in a better financial position in the future. This could include taking out a student loan to afford a college degree (which could allow you to earn more in the future), taking out a business loan to get your startup off the ground (which could also be a means of gaining revenue in the future) or taking out a mortgage to buy property (an asset that could give you access to funds in retirement). 

You should still take your time to reduce the cost of these loans by shopping around and doing research. For instance, sites like MortgageCalculator.org can help you to budget ahead while a loan broker may be able to help you find the best deal. Some investments can be riskier than others – make sure that it is truly a secure investment and not a gamble (borrowing money to invest in cryptocurrency is not a secure investment). 

Consolidating/refinancing debt

If you’ve already got debts, you may be able to consolidate these into one debt or lower interest rates for them by taking out another loan. Consolidation loans are offered by many banks and can be a sensible way of dealing with lots of debts. Shop around in order to get the best rates. 

Paying for emergencies

If you need to pay for an emergency such as urgent home repairs or medical treatment and you haven’t got any other way of funding it, an emergency personal loan might be the best option. In these cases, you should still take some time to shop around for loans and compare interest rates to ensure that you’re not paying more than you need to. Moreover, specialized medical loans or funeral loans may have much lower rates, whilst personal loans for bad credit may also be an option if your credit score is low.

The Worst Times To Borrow

Paying for personal luxuries

Luxuries such as vacations, designer clothing, new cars and jewelry should not be purchased using a loan. Saving up for these luxuries will make them a lot more rewarding. Having to pay loan repayments afterward could cause you to regret these purchases. 

Funding a gambling habit

Taking out a loan to fund a gambling habit can be dangerous. If you lose the money, you’ll have no way of paying it back and will essentially be in debt with nothing to show for it. you should only ever gamble with money that you can afford to lose – borrowing to fund a gambling habit could be a sign that you have a gambling problem. TheRecoveryVillage.com offers some great tips on how to beat gambling addiction. 

Paying off loans with bigger loans

Paying off a loan with a bigger loan will just cause your debt to grow. Some people make the mistake of paying off arrears with a payday loan and then paying this debt off with a further loan. In such cases, you’re not eliminating the debt but simply making it worse.