Taking a loan isn’t really an easy job. I’m not talking about small loans that we usually borrow from family and friends. Instead, I am speaking about loans or credit that we take from banks, credit unions or other financial institutions. These are generally large amounts and run into several thousand Dollars.
If you’ve taken a loan or credit, you’re aware they come with interest. For the Equated Monthly Instalments that we may include the loan amount and the interest. That’s because the interest is a way for banks and other lenders to make money for their own expenses, including operations.
Nowadays, a lot of banks and financial institutions offer loans with softer terms. That means they’re giving you an unsecured loan. These kinds of unsecured loans are given only on your merit. These include your credit score, monthly or annual income, assets and other liabilities, the income of your spouse and several other such factors.
While getting a personal loan or credit is easier nowadays, the question worth asking is, are loans really worth taking?
My answer to this question is a strong yes. That’s because loans can actually help you live a better life and also save your money over a longer period.
Actually, there’re a few benefits of taking a loan or credit. Therefore, I will begin by writing about these advantages.
Benefits of Taking a Loan or Credit
Obviously, you might think what’re the benefits of taking a loan. The reason being, a loan is actually a financial commitment. When we take a loan, we’re giving a commitment or a legal contract saying certifying that it would be settled over a specific period through regular payments.
So, here’re the top benefits of taking a loan.
Can Help Improve Your Credit Score
Yes, a loan by itself doesn’t damage or lower your credit score. Not repaying the loan on time can damage it. But when we pay these EMIs on time or even in advance, our credit score goes higher. This means we qualify for other bigger loans and credit.
Also Read: How to Improve Credit Score?
Fulfil Your Dreams
A loan could actually help fulfil your dreams. However, that doesn’t mean you splurge money on buying an expensive car or some fancy gadgets that lose value over a period of time. Instead, buying a house or improving your house with a loan can actually prove beneficial. It is well known that a house mortgage is also a loan, albeit with a different name.
Save Your Money
A personal loan can actually help save some money. True that personal loans come with interest. At the time, one can save money if you spend the loan amount on the right things. This includes buying something that will cost much more at a later date.
However, before I proceed, I will add a small warning. A loan is actually a cash advance. You’re taking the money in advance and paying for it later- from your wages or income that has yet to be earned. Therefore, using a loan carefully is important if you wish to get these three benefits.
Five Reasons For A Personal Loan
Now, let’s look at the five top reasons to take a loan. These would depend on your personal requirements and needs. However, taking a loan can help you in various ways. Here’re the top reasons to take a loan.
1. Paying Off Credit Card Dues
The Annual Percentage Rate charged in the USA on credit cards ranges between 14.92 per cent to 26.51 per cent. This depends on your credit score at the time of applying for a credit card. A good or superb credit score means a lower APR, while a poor or bad credit score means you’ll pay more money as APR.
The APR starts when you buy something using a credit card but pay only part of the money when the monthly statement comes. If you pay the full amount, no APR is charged. And if you continue paying in installments, every time, the pending amount will gather more APR.
The pending amount also includes the APR. There’re times when people have paid more than double the price for buying something using their credit cards due to the APR.
Therefore, taking a loan to wipe off all credit card dues is the best reason to take a loan. It can help you save a lot of money that would otherwise go as APR. In contrast, repaying a loan is cheaper when it comes to interest rates. Also, the interest doesn’t keep rising.
Investing the money that you get is another superb reason to take a loan or credit. As a matter of fact, such a loan could also make you very rich. However, getting rich despite taking a loan is not easy. You should know where to invest all that money to get the highest possible returns.
A lot of people take loans and invest in stocks. They make huge profits by buying and selling stocks. The profits they make go towards repaying the loans. Over a period, the value of their stocks increases many times, and the money has grown to a huge amount.
In fact, you wouldn’t even miss the amount that goes as EMI since it would most likely be paid from the profits of stock trading. And even if you’re paying the EMI from your pocket but retaining the stocks, it would prove worthwhile because the investment value increases.
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3. Forced Savings
If you have zero or very few savings but a healthy credit score, taking a loan or credit could help. Save the loan amount instead of spending it. There are numerous plans that banks offer if you wish to put away a huge amount of money. Go for the savings plan that offers the highest returns over a period of months or years.
Since the EMI will go from your monthly income, you will never feel that pinch. In fact, you will learn to live on a smaller income since a part of it goes into repaying the loan.
There’re also superb retirement plans where you can make a one-off payment and enjoy the benefits when you retire. About 83 per cent of all Americans don’t have enough savings for retirement. You can escape that group.
Taking a loan or credit is good for people that wish to save money but can’t control their spending habits. Since you have to repay the loan, you develop a forced savings habit.
4. Medical Treatment
Obviously, nobody wants to live with a long and chronic medical condition because it can rob you of the pleasure of living. In such cases, it is worth taking a loan if you or some loved one is suffering from a serious or chronic medical condition. You can take the loan and get fully treated for diseases or medical issues.
When you take a loan for medical treatment, it is possible to live a happier life. This happens because the sense of wellness increases. You would be able to perform better and work and possibly get a salary hike too. This, in turn, removes any negative effects of the loan on your life.
Most Americans have to bear out-of-pocket expenses when it comes to medical treatment for illnesses not covered by their insurance. And the good news is that banks and other lenders give a loan to cover medical treatment much more easily.
5. Starting a Business
A lot of us wish to start our own business. Unfortunately, few people actually dare to take the step and open a business. There’re reports that suggest that between 60 per cent and 90 per cent of businesses fail during the first two to five years. The main reason is their owners run out of money.
So, if you have a good business idea, have done enough research and know that it has a good potential to succeed while having something unique to offer people, take a loan or credit. That way, you can fulfil your dreams and become an entrepreneur.
You can pay the EMIs for the loan from the profits that come in. That way, the business would pay for itself, and you can focus on growing it. Over a period of months, you will surely find the business is successful and flourishing. That way, you could get rich soon while having paid off the loan easily.
Interest on Personal Loans
There’re a few things to consider before you take a personal loan or credit. The first is own ability to repay the loan without missing that amount. In the US, a personal loan comes at interest rates ranging between three per cent per year to 30 per cent per year. This depends on various factors, such as your credit score and the lender.
If you use the loan amount properly, it is possible to actually live a happier and better life. At the same time, spending recklessly after taking a loan can actually land you in problems. That means the inability to repay the loan will damage your personal credit score and could make you unfit for taking more loans and credit.
By itself, a loan is not bad. It could help you in several ways. However, taking a loan to spend on something that’s not necessary can actually cause you to lose money. For example, buying an expensive car might be your dream. But the value of the car goes down as you use it. This means you won’t really recover the money you are spending on such a venture. A student loan is necessary in most cases, but failure to repay on time can cause many problems for several years. A loan is your earnings spent in advance. Therefore, use it carefully.