Finance

Why do people consider taking loans

As the world faces economic challenges from unpredictable petrol prices to the hardships brought about the pandemic, it’s quite inevitable for many people to succumb in making a decision to take loans. A loan can be considered as a saving grace for others when objectives are clear and there is a foresight when it comes to repayment. 

People are applying for loans for various purposes and here are some good reasons:

For emergency expenses. The ideal is to have an emergency fund that can be tapped in case of unexpected expenses but in reality, savings for emergency were spent and used for other needs. Taking a loan for emergency expenses such as for immediate medical treatment or for funeral expenses when a family member or a loved one suddenly passed away, is a logically acceptable.

For debt consolidation. Another top reason to take out a loan is to consolidate debts where several debts mostly from credit cards are rolled into a single loan. This financial solution is ideal if an individual decided to regain credit score stability and to get rid of paying higher interest charges. Debt consolidation is designed to ease out the burden of paying for multiple debts with lower interest rate and easier payment terms through a single personal loan.

For immediate home or car repairs. There are certain things that get out of hand especially when it comes to home or even vehicle. We may never know when our car suddenly needs a major repair or when we need an emergency repair for our pipeline or electrical system in our home. Home improvement and car repair projects are reasons for taking out a personal loan. This will provide immediate funding when crisis like these arise.

For making a large purchase. Ideally when planning to buy big ticket items such as major home appliances or furniture, one must make an effort to save for this type of purchase. But in certain unexpected situation, when the refrigerator or washer/dryer machine suddenly stops working, taking out a loan for the purpose of making a large purchase is reason enough.

Loans are actually not bad if we will just use them for the right purpose. Your major purpose for taking out a loan should be for something that will generate income in the long run, in that case for business or investment. Another important reason is for our health, as we also need to invest in good health. Desperate times call for desperate moves, such as emergencies when we have no choice but to borrow money to pay for it. That is also a kind of investment – we invest in our life and safety. 

You don’t borrow money just to flex or splurge or spend the money on a lavish vacation or extravagant parties. Showing off is the worst reason for taking out a loan, and whatever amount you borrowed make sure to make repayments on time. Don’t wait for the deadline if possible because a day that you missed paying could mean money – late payment fee.

Always be wise when taking out a loan. It’s a major life decision so make sure to consider a lot of things first before you finally decide.

Christopher Stern

Christopher Stern is a Washington-based reporter. Chris spent many years covering tech policy as a business reporter for renowned publications. He has extensive experience covering Congress, the Federal Communications Commission, and the Federal Trade Commissions. He is a graduate of Middlebury College. Email:[email protected]

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