Thinking of Taking Out a Loan? Here Are Some Things To Keep in Mind

Posted January 27, 2021 by in Lifestyle

Let’s face it, almost everyone has been through some kind of financial difficulties in the past. Whether it’s due to emergency medical expenses or because of some bad purchasing decisions, we’re all likely to experience some kind of financial mishap in our lives. After all, we need to learn our limits with money, so it’s entirely normal to feel like we’ve overspent or that we’re not budgeting correctly.

As a result, many of us have likely also thought about taking out a loan. For instance, if you’ve recently had an accident and are struggling to pay for the medical expenses, then you may want to consider taking out a loan to cover it. While there are likely financing options for medical expenses, it’s likely that you can also take out a personal loan if it‘s more convenient for you or if it’s a procedure that isn’t covered by your health insurance. Either way, it’s not entirely unusual to see people taking out loans in this day and age, especially if it’s for an emergency.

But what if you want to take out a loan for personal leisure reasons? Perhaps you think it’s time for a holiday and you don’t have enough money to pay for the entire trip. Maybe you’d like to treat yourself to a nice new television and games console. Is taking out a loan a good option then? While it sounds like an extremely bad idea from a financial perspective, there could actually be a good reason to take out a loan.

So in this post, we’re going to take a slightly different perspective and look at some considerations that you should keep in mind before you take out a loan.

If you can afford it, there may be reasons why you still want to take out a loan

When it comes to paying for something, it’s common for people to suggest that you just withdraw the money and buy it with no strings attached. For example, if you’re able to afford a new computer or laptop, then you should buy it in a single purchase to avoid any interest fees and building up bad financial habits.

However, the reality is that there are good reasons for taking out a loan, even if you can outright afford something.

  • Improving your credit rating – Some people prefer to take out a loan on as many purchases as possible, even if they can afford them, just to improve their credit rating. Banks like to see that you’ve borrowed money in the past and they like to see that you’re good with making payments on time. This will help improve your credit score and will make it easier for you to take out larger loans in the future. This is excellent for car financing or for applying for a mortgage in the future.
  • To spread out payments – Some people just simply don’t like seeing a huge drop in their bank balance. There are lots of good reasons why you might want to spread out the payments, such as ensuring that you always have some savings in the bank in case of an emergency. If you prefer to pay things in instalments, then there’s absolutely no problem paying it off with a loan instead. You might end up paying a bit of interest, but as long as you pay more than the minimum each money, you can actually reduce the amount of overall interest you pay.
  • Take advantage of low or zero-interest options – There are also lots of offers available where you pay little to no interest on loans. These are fantastic for purchasing entertainment items like computers, game consoles and so on. There are many websites and stores that allow you to pay for something with credit, so it’s very similar to taking out a loan since there are monthly repayments and interest rates. However, to entice people into using these deals, they usually offer unique deals such as zero interest within four months, or 0% financing on cars.

These are just a few reasons why people might still want to take out a loan despite being able to clearly pay for something with their bank balance. It may sound strange to people who are traditionally trained in managing their money, but there are certainly a lot of modern reasons why someone may want to take out a loan these days. Whether it’s to improve your credit rating or just for peace of mind 

If you can’t afford it, is taking out a loan the wisest option?

When it comes to taking out a loan, it’s important to seek out the best option in terms of repayments and other related conditions. For example, if you have no savings and you need to pay for something like a house repair, then a loan might not be the best option if there are insurance options that you can use instead.

For starters, try and see if there are alternative options to fund the thing that you can’t afford. If you’re trying to pay for a medical expense, then it doesn’t make sense to immediately look at loans as an option. Instead, you could look at your health insurance and if there are any financial options provided by medical services. This could get you a much better deal than just taking out a personal loan, and it’s often a lot easier to pay back because it’s dedicated to a specific service or product.

You can also get financing options for a number of other things, even if it’s related to entertainment or leisure. For example, Apple offers a trade-in program to help you reduce the costs of buying something new. You can trade in an older device if you want to upgrade to a newer one, and you can still use Apple’s own financing options to help you pay it off. This is a great way to reduce the costs of a new personal purchase and is often the way to go if you’re unable to afford something outright.

In short, make sure you’re always looking for alternatives when it comes to funding something you can’t afford. Depending on the situation, you might be able to avoid high costs and take advantage of great deals. Taking out a loan should be seen as one of the last resort options because it’s often the most expensive choice. You’ll have large repayments and you’ll be paying a lot of interest.

If possible, you should try and look for financing options from a brand instead of going straight to your bank for a loan. It’s similar to taking out a loan, but you often get deals tailored for your needs or the product or service that you’re buying.

Taking out a loan in an emergency situation

Unfortunately, not everyone has the luxury of weighing their options before they decide to take out a loan for something like an emergency. If you really need money quickly, then there are companies such as Wise Loan that will approve a loan in just under 24 hours. This is a great option if you’re in desperate need of cash and it’s usually the best option for people who are struggling with their finances.

Of course, there are still plenty of other ways that you can deal with an emergency situation. For instance, you could ask a friend or family member to lend you some money, or you could consider speaking to the service in question to see if you can reduce the costs somehow. For instance, if you’re unable to make tax payments or mortgage payment, then you may be able to speak with the service in question and let them know your situation. If you have a good reason for missing a payment or delaying it, then they’re usually willing to compromise as long as you let them know in advance and are clear about your intentions.

The first course of action is to understand what the consequences are if you don’t take out a loan for an emergency. For example, if you can’t pay your mortgage and are looking to take out a loan to cover the costs for the month, then think about what the consequences of missing the payment are. You could lose your home in some cases, but it’s far more likely that you can negotiate with your lenders to see if you can get more time to make that particular payment, especially if it’s unusual for you to miss a date.

However, if it’s not the first time you’ve missed a payment, then you could rely on friends or family members to help cover for you, especially if they’re unlikely to ask for interest. Failing that, it may be a good time to reevaluate your spending habits and try to reorganize your budget as it could be a sign that you’re living well beyond your means.