Why should you not take out a loan? let’s discuss! Taking out a loan, be it personal, home equity, student loans, business loans or any other type of debt can be one of the most dangerous financial decisions you make, even if it is short-term and ends up being paid back in full.
Many people do not realize just how bad taking out a loan can be, but this post aims to help those who are on the fence about whether or not to take out loans understand why they shouldn’t ever do so again. Here are 8 reasons why you should stop taking out loans immediately.
SEE ALSO: Everything You Need to Know About Loan Forgiveness
Reasons Why You should not take a loan
1. There is never an urgent need for a loan
The only time you should take out a loan is when there’s no other option, and even then it might not be the best idea.
Most loans are created with the intention of making more money from the interest, so if you can avoid taking out that loan in the first place, you will be saving yourself from having to pay back more than what you originally borrowed.
The high interest rates make it difficult for people to maintain their budget: Think about all the extra spending you’re going to do just because of those high interest rates.
SEE ALSO: How to apply for a Citizens Bank Student Loan
2. The hidden costs are high
The hidden costs of taking out loans can be substantial. Interest rates and other fees are usually set at the beginning of the loan period, but they compound throughout the duration of the debt.
In many cases, you will end up paying back significantly more than you originally borrowed. Even worse, if your credit is less-than-perfect, you might not have access to loans at all. If you need cash in a pinch, consider asking family for help or going with an alternative financial source.
For example, there are peer-to-peer lending options that offer lower interest rates and better terms. And since the money goes directly from lender to borrower, there is no waiting time before you receive funds.
3. Weigh the pro and cons before signing up for the loan
There are always two sides of every story, and when it comes to loans there are some definite advantages. If you’re considering taking out a loan and aren’t sure if it is the right decision for you, here’s what you need to know.
✓) Loans can be beneficial when used wisely.
If your credit score is low or you don’t have enough cash saved up to make a purchase that will help you reach your goals in life (i.e., buying a home), then going ahead with borrowing so money may worth it. It is all about weighing the pros and cons before signing up for the loan.
✓) Loans can be too expensive.
SEE ALSO: How is a Student Loan Different from a Scholarship?
4. Give yourself time to think about it
To stop taking out loans, you need to take control of your money and make sure it is working for you. If you have an emergency fund saved up, that’s all the money you will need.
Instead of going into debt, use the following tips to start saving up now:
<This part should talk about – Tips for Saving Money.
✓) Use cash instead of credit cards whenever possible. When using cash, there is no temptation for impulse purchases or overspending.
You can’t charge something without having the cash on hand! Put away a little bit every day, whether from your paycheck or as soon as you get home from work. It will add up quickly!
✓) Become aware of how much time-saving tasks cost.
SEE ALSO: Student Loan Company Email [SLC Contact Email Address]
5. Do not take out payday loans
Payday loans are among the worst type of lenders in the market. They charge exorbitant rates for short-term loans and typically offer no other benefits or perks.
You can take out a small, $500 overdraft from your bank that will charge you less than 10% interest over the course of 12 months, while payday lenders will charge you more than 100% interest over just a few weeks.
If you really need to borrow money and have good credit, consider getting a secured credit card instead: Your credit limit is based off how much money you put down as collateral (e.g., $1,000 would get you up to a $5,000 line of credit).
SEE ALSO: SAAS Student Loan/Funding Application [Eligibility, How to Apply]
6. A financial emergency does not mean you need a loan
A financial emergency does not mean you need a loan. If you are in an emergency situation, look for other solutions before resorting to borrowing more money. You will find that most of the time, there are options available like selling your car, asking family members for help or taking out credit cards.
Loans are meant as a last resort and it’s important that you know when they should be used before signing on the dotted line. Here are 8 reasons why you shouldn’t take out loans anymore.
The very reason people go into debt is because they want to get out of debt. But if all you do is take one debt and roll it into another, then all that happens is you create a new debt cycle with higher interest rates.
SEE ALSO: Student Loan Company Contact [Phone Number & Email]
7. Borrow only when you can pay back easily
Borrowing money can be tempting, and sometimes it is necessary. But borrowing should only be done when you know that you will have the ability to pay back the debt in full with little effort. The more you borrow, the more difficult it becomes to pay off your loan.
This can lead to spiraling debt, which is detrimental for your finances. Instead of using loans as an easy way out, think about how much time and effort you would need to put into earning this amount of money.
When considering whether or not to take out loans, always think about whether or not you could earn the same amount of money through other means.
8. Do not borrow money unless there is an absolute necessity
Borrowing money when you don’t need it is never advisable. It is important that you only borrow money if there is an absolute necessity, like if your car just got totaled in an accident and you need the cash to get another one.
However borrowing money for any other reason is not recommended because…
✓) The interest rates on loans can be very high.