Everyone struggles to maintain a balanced financial life. However, many times things do not work out the way people want. For example, a person may want to own a home at the age of 26 and live comfortably without paying rent. With limited financial resources, he or she may not be able to achieve the objective. The person may need to ask for a loan from lenders such as banks or other financial institutions.
Loans offer good financial support in a situation where a person cannot pay for a product or service with cash down. However, it also important to note that taking a loan can also affect personal economics in a negative way. Before someone opts for a loan, it is important to set priorities straight and have a strong plan of repaying the loan. A piece of advice from a financial expert may help a borrower make a wise decision. This is not to say that loans have outright negative impacts. The idea is to instill in the mind of a borrower both the positive impacts and the downsides of taking a loan.
The advantages of taking a loan are numerous. It enables a borrower to acquire a property that he or she could not afford to pay in cash. This may be a real estate property, a car, or college fees. In essence, with a loan a person is able to acquire a product or service without using personal money.
Taking a loan gives a borrower the opportunity to repay the amount in small installments. This means that even with a medium sized income, one can repay a loan with a good plan and a functional budget.
Another advantage of taking a loan is the duration allowed to repay the amount borrowed. Some lenders give up to three, four, or more years to clear a loan. On the borrower’s side, the extended duration enables the borrower to organize repayments in portions of agreed amounts until the whole loan package is cleared.
However, borrowing money can have negative financial implications as well. If a borrower takes a secured loan, which is the most common in banks, the person has to provide collateral. In case the borrower fails to pay the borrowed amount on time, the bank has the right to seize the collateral and pay for any outstanding debt. In that situation, the borrower is bound to lose the property forever.
With a long period of repayment, loans have accrued interest that a borrower has to pay in addition to the capital. This means the borrower pays more money in the long run.