Some people keep borrowing money and then pray that their lender will somehow somehow forget about it…
The topic of loans and borrowing is sometimes a touchy subject, due to the many experiences people have encountered, sentiments, and stereotypes.
Most people have little or wrong knowledge about how loans work and how the money they’ve just gotten should be used.
First of all, a loan is not some free money…
A loan is borrowed with an expectation to be paid back, usually with interest. Some people really need to hear this one…
Emphasis on the ‘expected to be paid back’, a lot of people, especially on the receiving end of the money being given, fail to grasp that the money gotten has to be paid back during the specific time stipulated.
This brings us to the first factor to consider if you are the one lending out to someone:
1. Can they pay? No, really. You need to weigh whether their source of income is stable/ reliable or not. This largely determines how fast and efficiently a person can pay back. The willingness to pay back and multiple promises, although good, are not the only assurance you need if you plan to see your money again.
There are exceptions to this factor and one would need to use their discretion sometimes. On a general note, the stability of one’s income has to be correctly weighed.
2. Do they have a bad debt history? You actually need to sit down and calculate the reputation of your borrower. Do they have a history of shady dealings? Are they known for failing to pay back, paying late, giving excuses, insulting their benefactor etc.? As a lender, you should already know what to expect and you need to put the appropriate measures in place.
We’re just saying you might have to sign a written contract of agreement even if they are your family member.
3. What is the money being used for? Yes, yes. Some people may argue that it’s none of your business, but if you really love your money, you will pry. For example, if this person is borrowing money to fund an already existing business or start a new one, you now know that they will make profits and can eventually pay back.
Now if another person is borrowing your hard-earned money to fund a party, go on a vacation, or buy a gadget which are all simple indulgences and not a form of investment, you cannot expect profit to come from these activities. The money to be returned has to be from another verifiable source.
If you are lending out money, keep all the discussed factors in mind and ensure to enforce measures that will allow you to receive your money back as soon as possible, like adding interest or asking for a collateral.
Now, if you’re the one borrowing money, ask yourself:
1. Can I afford it? It is crucial to assess your financial capacity before borrowing money in the short term. While it may seem tempting to take out a personal loan, it’s important to remember that you will be required to repay the borrowed amount. If you find that you cannot comfortably afford the monthly payments for a new personal loan, it may be wise to reconsider and potentially forgo the loan altogether.
You also need to consider your daily or monthly expenses, as these expenses can impede your ability to pay up what you borrowed. Draw out your payment plan and get to work.
2. Do I really need it? Before pursuing a personal loan, carefully consider whether you truly need the funds immediately. If you are considering taking out a loan to cover the cost of something that can be delayed until you have more financial resources available, it might be wise to postpone the expense.
By waiting until you have sufficient cash on hand, you can avoid unnecessary debt and ensure that you are making a financially prudent decision.
So… When is Taking a Loan Okay?
Sometimes, taking out a loan can actually be a smart move. Imagine the following scenarios:
~Investing in Yourself: If you have your eye on a life-changing opportunity, like pursuing higher education or attending a professional training program, taking a loan to invest in yourself can be a game-changer.
By equipping yourself with new skills and knowledge, you’re opening doors to better job prospects and potentially higher earnings in the future.
~Emergency Situations: Life can throw unexpected curveballs at us, like sudden medical expenses or emergencies. In these situations, a loan can be a lifeline.
When faced with an emergency, it’s crucial to act swiftly, and a loan can provide the financial support you need to handle the situation without causing undue stress or disruption to your life.
~Consolidating High-Interest Debt: If you find yourself drowning in multiple debts with high-interest rates, it might be time to consider a loan for debt consolidation.
By combining all your outstanding debts into a single loan with a lower interest rate, you can simplify your finances and potentially save money on interest payments in the long run. It’s like hitting the reset button on your debt and regaining control over your financial situation.
~Seizing Investment Opportunities: If you are a savvy investor with your eye on a potentially lucrative opportunity, taking a calculated risk and using a loan to seize it can be a bold move.
Whether it’s starting your own business, investing in stocks, or expanding your real estate portfolio, a well-thought-out loan can provide the necessary capital to fuel your ambitions and potentially reap substantial returns.
~Achieving Major Life Milestones: This one is tricky and so should be approached with wisdom. Some moments in life are simply worth celebrating, even if it means taking a loan. Whether it’s buying your dream home, planning a memorable wedding, or embarking on a once-in-a-lifetime adventure, a well-planned loan can help turn your dreams into reality.
Just remember to approach these milestones responsibly and ensure that the loan terms align with your long-term financial goals.
While borrowing money should be done thoughtfully, there are times when it’s worth considering.
So, weigh your options, assess the potential benefits, and make sure you have a solid plan in place to repay the loan responsibly. With the right strategy and a clear purpose, taking a loan can be a positive step towards achieving your goals and creating a brighter financial future.
Now your turn…
What can make you actually take out a loan? Education, housing, buying a car, travelling, or just general living costs and survival?
