In the modern-day world, the requirements of an individual have way passed their income. To fulfill those requirements, one can either empty all their savings, which is a wrong way of spending the conservation that has been collected over time or take a Loan. There are different types of loans available in the market right now. Home Loan, travel Loan, Personal Loan, Medical Loan, and whatever your requirements are. There are various kinds of loans on offer in the market that can provide you the amount as per the need for an extended period.
Loans such as Home loans can be provided up to a time of 30 years, which is one of the most extended periods. Also, you can get a car loan to buy the car of your dreams, which would be otherwise out of your budget. These loans have provided a bride to fill the gap between an individual and his needs. However, not all types of debt we carry over yourself are healthy debt. Debt is helpful when one needs to fulfill their obligations or need to get something that is very important immediately. Some debt comes with a lot of pressure as their interest rate are higher and consume a lot over the principal loan amount.
Since individuals take the number of loans has increased, so has the facilities. To approve more loans, online facilities have been promoted for quick home Loan approval and dispersal. Loans can be a perfect way of saving your money when you do not need to spend the entire saving amount on different things at one time. Investments not only allow you to promote savings but also help in paying the whole amount from your monthly income in small parts. However, there are many things that one needs to things over before opting for any loan as it can be a significant burden on your head due to the following reasons.
It makes you think you can spend more than your limits: the biggest problem with a Loan is that it makes you spend more than you can manage. If a person earns 20000 INR, with a Loan, he can pay 5000 or more extra from his income, which will become a direct debit on his next income, even before he gets it. This is how the Loan industry has been processing and earning from the customer. They provide loans with immediate approval and dispersal, which makes the person spend the money on things that he might not even need. For example, Credit cards are a type of debt or Loan that everyone can avail immediately.
Be it a shopping mall or any place that accepts credit cards, and it will help you to buy more products and services than you can manage in your income, leading to more debt. It affects your saving: It’s true. Whenever you take a loan or a mortgage, you are changing your income and saving. More the debt on you, the less your savings will turn out to be. This will not only affect the savings you have now but will also hamper your future investment. You will be spending your income on something that you have already used in the past, which will affect you in the future. Therefore, any debt that reduces your future savings is not recommended.
One has to pay more than the value of the items: This is one of the significant flaws of getting a Loan. For example, you have to purchase a car which cost you 500k at the time. You took a Loan of 5 years on a specific interest rate and had been paying for five years. In the meanwhile, the value of the car keeps depreciating while you are paying the extra cost over the actual amount of the vehicle as interest. In a Loan, you not just repay the exact amount, but also the interest that will be charged. The Lower the Loan value will be, the less interest amount you will have to pay. However, in cases like Home loans, where it is meant for two decades, the amount of interest you pay is a lot.
Therefore, apart from paying the actual amount, the person has to pay extra from his pocket that could have been used in his future investment. Unable to fulfill your financial goals: The major issue with debt and loans is that it does not allow you to plan your future as you would have without it financially. Financial planning without investments will enable you to invest more and save more for the future instead of paying it in the form of EMI. Since you pay the original amount with the interest rate, your initial financial planning has to go out of the way, and the next plan will have less scope for your savings. Therefore, only apply for a loan when your cash flow through income is more.
They are a big part of your stressful life: Debts are no less than a stressful event in your life, is the duration is long, and the interest rate is high. For example, in a home loan, a person needs to pay the amount regularly for a decade or more. This is a long term commitment and creates a lot of pressure and stress over the person to pay the EMI. In any unfortunate events, if a person is jobless and unable to pay the Loan EMI, he could be under a lot of stressful situations by the bank. So much stress can also cause many medical issues for a person, affecting his health. Therefore, only commit for long term loans and debts when you have surplus amount as a backup or do not go for it.
Therefore, only go for a Loan when you are 100% sure that you will be able to pay the amount regularly and without affecting your present and future savings. Loans are not good or bad, and it depends on the planning a person does before getting one.