Taking a loan can be tricky due to the high-interest rates and regular installments. Some people take business loans, but the investments fail to pick up which brings the lenders knocking on their doors.
What happens if you take a student loan then you fail to secure employment? Life is full of surprises and the following are situations where a loan is OK.
When you can afford the installments
You have to gauge your capability before committing to borrow from a financial institution or friends. If you intend to search for employment to help you refinance the loan, do it first and then borrow.
You can use a loan calculator like this one to estimate monthly installments and determine whether you can afford to pay other bills as well as this new loan.
When you need an essential item
Some people take loans to finance fancy and luxurious lifestyles but end up being slaves to financial institutions. Crucial items are those things that you need to survive on a daily basis or for business operations.
A printer in your office can save you time and money in the long-run, and you can thus borrow than purchase one. You can borrow to expand your business as well.
Take advantage of special loans
The government and non-governmental organizations offer credit solutions that target areas such as education, housing, environmental conservation, veterans and the poor in the society.
For example, the UK government provides loans for veterans with lower interest rates and better favorable terms when compared to those from financial lenders.
You can afford to pay off the loan early
You can borrow to finance a promising business opportunity if you expect great commissions or bonuses in some months to come. You can always repay the loan in a lump sum if the lender does not charge prepayment penalties.
Returns are higher than interest rates
There are several justifiable instances when you should get a business loan. If for example, your portfolio generates about 12% annual returns and the interest rates range between 4-5%, then you can borrow. You get about 7% in returns, and you can expand or upgrade your business with that extra amount.
Loans can help you expand your business or lead your dream life. On the other hand, you can lead a miserable life due to default in payments and foreclosures. Evaluate your needs and know those times when you should never take a loan. Use the borrowed funds for the intended purposes and avoid impulse buying.