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“Loan” shouldn’t be a dirty word…

December 1, 2014

What’s one of the golden rules that you’ve been taught about money? If you had parents or relatives that were financially conscious, then they may have told you to never get in debt. In order to get in debt, you need to owe people something. If you can’t pay for your cable television subscription, then you cut it. If you can’t afford your expensive phone carrier plan, then you reduce the features. The idea is to never get into debt by never borrowing any money until absolutely necessary.

However, borrowing money has some advantages, but the idea of a loan itself has received lots of bad attention because it’s typically associated with debt. To give you an alternative view on money management, here are a couple of considerations to keep in mind when it comes to loans.

#1 – Loans are great for building credit score

If you take out a loan and successfully pay it back, then it increases your credit score. It’s simple to do and has plenty of advantages for the future. For example, if you have a good credit score, then you’ll gain access to low-interest mortgage and you’ll have a better chance of borrowing money from a bank when you most need it. It’s a time-consuming process to build up your credit score, which is why many people still take out low to zero interest loans just to buy big purchases.

#2 – Loans can come from more than just the bank

If you’re in dire need of money for an emergency, then it’s not just the banks you can borrow from. For instance, home owner loans are a great alternative because they use your home as collateral instead of your money. This means you can get a much bigger loan if required. The point is that loans can come from many different sources. They don’t always need to be from the bank, and this means there are more ways for you to get money when you absolutely need it.

#3 – Loans give access to new options

Thinking of buying a car in the future? Why not settle for a low-interest rate now while the car is still new and fresh off the market? Do you want to purchase a new laptop to help you work more efficiently on the go? A loan can help with that. The point is, having extra funds means that you have more options to make your life easier to live. Being able to withdraw a loan from a bank or a lender at a moment’s notice will make it easier for you to perform emergency repairs if needed, or even get the money to completely replace your vehicle should you need it.

#4 – Loans can pay for emergencies

Whether a natural disaster tore through your home or your car broke down and you need it to get to work, taking out a personal loan is a quick way to fix these issues and get yourself back on your feet. Sure, you have insurance companies to help you pay for these types of emergencies, but between the time it takes to send a claim and receive compensation, you could’ve easily fixed the issue. It’s good to have insurance and to rely on those companies, but if you’re in dire need of emergency funds, then a loan is the only choice.

#5 – Loans are great for budget management

More and more companies are offering low to zero interest loans. Even PayPal is offering PayPal credit, an interest-free credit option that allows you to pay for virtually anything in 4 months. If you’ve just had to spend a lot of your budget on an emergency, then it might be worth spreading those payments over several weeks to ensure that you still have enough money to pay for groceries and travel. In short, loans give you the ability to spread the cost of something over a longer period of time so that it doesn’t disrupt your living costs.

Loans can give you plenty of advantages. Having said that, it’s worth mentioning that it can quickly spiral out of control. You need to monitor your own spending and ensure that you aren’t going over your budget or building up too much debt. If you feel like you could benefit from a loan, then it’s important to weigh the advantages against the disadvantages. Yes, and advance in your wages can help you pay for emergency expenses, but if you grow too comfortable with how often you take out a loan, it will start to affect the way you treat your money and you might forgo proper budgeting.

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