Borrowing Money - Pros & Cons
Should You Get a Personal Loan with Affordable Monthly Repayments?
Jun 22, 2009
Consumers have unlimited wants so it is important to establish whether borrowing money is the right option. A personal loan enables a consumer to make an immediate purchase rather than saving up for many months. Whilst any form of borrowing can lead to a cycle of personal debt, it can also help to save money or negotiate an emergency situation.
Advantages of Borrowing Money
- Emergency situations. A personal loan could be helpful in terms of meeting short term financial commitments. For example, borrowing money is better than not paying rent.
- Spreads costs. A series of monthly repayments can be made over a defined term.
- Interest-free. Whilst all personal loans involve interest payments, interest-free credit may be available on hire purchase agreements, bank overdrafts and credit card balance transfers.
- Bargains. Borrowing money allows a consumer to pick-up a bargain in a summer or winter sale. Without a personal loan, the opportunity to save money may be lost.
- Debt consolidation. Personal finances can be complex and involve making multiple, high APR payments. It is better to make a single, affordable monthly repayment.
- Buying a house. Home ownership would rarely be possible without a mortgage.
- Car loan. Many individuals in rural locations need a car in order to get to work. If sufficient personal savings aren't available, buying a car wouldn't be possible without a personal loan.
- Start a business. Borrowing money can be helpful with the start-up cost of a business. Without this injection of capital, setting-up would either be delayed or not possible.
Disadvantages of Borrowing Money
- Interest payments. A personal loan will attract interest payments. However, it may be possible to get an interest-free credit card balance transfer or personal overdraft.
- Personal debt. Borrowing money can lead to a cycle of personal debt that is difficult to break.
- Bad credit rating. An adverse credit rating will mean that monthly repayments will be high. Borrowing money can prove expensive when missed and late payments have been made.
- Secured personal loans. Turning unsecured into secured debt is rarely a smart move as it gives creditors greater powers to collect personal debt in the event of default.
- Impulse buying. A personal loan can seem like easy money and result in impulse buying.
- Monthly repayments. This will leave less money available each month until the outstanding personal debt is cleared.
Borrowing money can help a consumer out of a tight financial spot, but it can also lead to personal debt. It is important to consider whether a personal loan really is essential or whether it is better to save up. Does a family holiday really warrant taking out a loan?
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
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