• Monday, July 22, 2024
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BusinessDay

Understanding financial loans

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Times are changing pretty fast with needs visibly out weighing resources, however loans have overtime acted as a supplement in helping individuals meet their ever growing needs but only when borrowed for the right reasons will such “generous cash” not hunt back.

A loan is a sum of money an individual borrows either from a financial institution or from individual with the condition that it will be returned or repaid at a later date most times with an interest. As simple as it might seem, identifying the right reason to take a loan is a really tough decision because of the huge task of having to repay back within a stipulated time frame.

While loans are expected to be a last resort in meeting an urgent or unplanned financial responsibility outside of a budget, it’s quite unfortunate some people end up taking a loan for the wrong reasons, an obvious bad habit.

On the flip side, any purchase or financial commitment which can be postponed until you have saved up for it without affecting your well being evidently doesn’t  require you taking up a loan to meet such need, else you would be indirectly paying more for such purchase as your loan would always come with an interest.

Experts believe that one of the few right reasons to take a loan is to attend to an urgent medical need or situation which could either be life threatening or could build into a more complicated issue if not resolved early enough. For example, an urgent surgery.

Equally a worthy investment or business plan which can repay your loan, interest and still leave you with some profit is also another good reason to borrow. A common example is a well though real estate investment.

While some experts believe its wise to borrow for once in a lifetime event such as wedding ceremony or honeymoon, its also important to have a formidable repayment plan that could easily offset such an “unprofitable” loan without affecting future financial responsibilities.

Taking out a personal loan to consolidate high interest debt is also a worthwhile reason. Though you’ll still have payments to make, you’ll save a great deal of money in interest fees while you repay your loan at slower pace.

While a car might seem a luxury, buying your new car with a car loan can pose lesser financial stress. Also, you shouldn’t necessarily take the maximum amount available to you if you don’t need it, especially if some percentage of the offered loan and your savings can afford your new car then you shouldn’t take all the loans offered else you will be paying so much for your car when you add up the interest rate.

ODINAKA MBONU