The question of getting a loan is one that every adult person had to face at least once in their life. Therefore, it’s a topic that everyone has an opinion about. Whether or not it’s smart to get one depends on the situation and, in some scenarios, you may not really have a choice. Sure, traditional loans have numerous alternatives, yet, sometimes these alternatives may not be available or come with much worse downsides than you would experience if you were just to apply for a loan. Nonetheless, it’s always better to know exactly what you’re up against. With that in mind, here are several pros and cons of getting a loan.
Getting a Loan
Paying back in installments
The main reason why some people apply for a loan is due to the fact that they need a vast amount of sum at the moment and they hope to pay it back in installments. While some may compare this to putting money into a savings account and dipping into it once its full, there’s one massive difference that you need to consider. Let’s say you get a massive loan that you’ll have to pay back for the next 30 years (with interest rate, of course). You get the money right away to invest in a family home or to put a money in a business, instead of having to wait for 20-25 years (without the interest rate) to do so.
The interest rate
For anyone who has read the previous article, one thing is more than clear, the interest rate is a major con of getting a loan. Lenders run a money-making operation, which means that in order for them to generate profit, you need to return more money than you receive. Still, this is a necessary evil that you have to accept if you’re to find a loan. Now, keep in mind that the interest rate isn’t fixed and that it gets determined by various factors (mostly risk factors). If you have a strong enough guarantee in form of a collateral, someone to vouch for you (or return the money in case you are unable to) or, at least, a decent enough credit history, you might get a fairly low-interest rate.
It might not fit your budget
One of the biggest mistakes that a lot of people make when applying for a loan is the one of miscalculating and overestimating their ability to make all the subsequent monthly payments in time. Keep in mind that things might change in the future. This is why you need to start by asking one basic question – where would the money for these monthly payments come from? Then, you need to proceed by asking how reliable this source of income will be in the future. Provided that you aim to create a new source of income with the money that you’re currently lending (a personal project), you’re taking a leap of fate. Keep in mind, people sometimes use personal loans (not just business loans) to fund business projects.
A chance to give back
Nowadays, we live in an era where more and more entrepreneurs refuse to use conventional means like bank loans in order to fund their business. Why would they with all the crowdfunding options available online, as well as the fact that the trend of P2P lending is currently at its pinnacle? This last part can also be a good thing for those who are now out of the woods and are looking for a way to give back to the community that led them through a tough period in their life. Through the option of fixed interest investments, they could even stand to make some income this way. In other words, in time, one of your company’s regular expenses could soon turn into a steady income.
A great diversity
The best thing about applying for a loan today lies in the fact that there are more options available than ever before. This means that you can find lenders for any type of loan you might need. For instance, some lenders may provide you with a loan that’s only $500 and allow you to pay them back in just a couple of weeks. This can help you avoid the scenario where you need to apply for a much bigger loan in order to get more favorable terms.
Online loans also provide you with an option to gather and file all the paperwork online. What this means is that applying for a loan may take as little as five minutes. Traditionally, the process would take weeks and weeks. Lastly, some lenders specialize in providing loans to those with bad credit, which, on its own may act as a major game-changer. All in all, when it comes to the lending-borrowing industry, never before were so many different options available.
A risk to personal property
At the very end, we need to address the issue that’s probably perceived as the biggest possible con, which is the loss of a personal property. A loan that’s secured by your family loan, could, if you’re not solvent or diligent enough, result with you out in the street. This is an unsettling thought and this story probably isn’t even that unfamiliar. Since the last recession, a devastatingly high number of people shared this fate, which still makes some people reluctant to opt for this kind of a loan. With an unsecured personal loan, this is not a possibility.
At the end of the day, the term loan is not something easy to describe, mostly due to the fact that it’s an umbrella term. Depending on the source of the loan, the amount that you need, other properties, as well as some additional factors, you may end up faced with a completely different situation. This is why, other than general knowledge on the topic, you also need to spend a fair amount of time doing research on your specific situation. Only in this way will you be able to get the most favorable deal possible.