How often do you experience a lack of funds? And have you ever thought about taking out a bank loan? If you have, then please check out the reverse side of the coin, not to make a floater.
Many people who take a loan for goods and services remain more or less satisfied with the financial service. However, sometimes taking out a bank loan may change your life for the worse.
So, what kind of things do you need to think over before taking a bank loan? What reasons are enough to abandon the idea of borrowing money from the bank? Let’s consider the top-7 reasons not to take out a bank loan along with Lucy Adams.
#1 Lack of Reserves
According to experts, taking out a loan is too risky if you do not have free cash savings equal to at least three month’s salary. If the loan amount exceeds your annual salary do not borrow money without having at least a semi-annual salary in stock (note that it should not be on deposit or in a turnover, but freely available).
The need for reserves can be simply justified. You can get into an accident, lose your job and not be able to find a new one for several months, suddenly being forced to spend large sums on the problematic situation of close friends and family, etc. All these reasons reduce your income to zero for a while.
Entering the loan battle without reliable financial backup is like fighting without protective clothing.
#2 Unpredictable Exchange Rates
No reserve will help you if the financial institution raises the rate on your loan. I mean, there are still some loopholes that can be potentially used by banks to deceive investors. The longer the term of your loan, the more chances you have to “catch” a mockery of fate like unexpectedly rising payments.
In addition, sometimes exchange rates change rapidly due to increased social risks or some other social or economic problems. Then, by taking out a loan, you lose twice in both purchasing power and increased loan amount.
#3 Undiversified Income
Unfortunately, there’s always a certain probability of force majeure events in the future. Thus, it’s quite shortsighted to take out a loan for someone who has only one source of income, as well as for those who can only deal with one type of professional activity.
In my opinion, to be sure you’ll be able to repay the loan, you have to have at least two streams of income flowing into your pocket. Ideally, such flows should be in different currencies. Diversification is one of the foundations of financial security!
#4 Pseudo Benefits
You take out a loan to spend money, right? Lots of things give us comfort, but they bring the maintenance costs, which you might not think of beforehand.
- For example, a person spending $50 per week on travel for some reason is sure that he will save by having a personal auto, while the cost of fuel and maintenance are likely to far exceed the mentioned $50. Of course, you will travel in “your own” car, but “your own” is not a financial parameter. Motorists say that the monetary gains from the non-commercial use of automobiles start with a constant ride. Otherwise, you take a loan for a status and comfort.
For example, the urgent acquisition is still worth a big part of your budget. Then think about such problems as a feeling of lack of freedom, and oppression that is typical for a poor person who’s under the burden of loan contractual obligations. It’s very unpleasant to get only a half or even a third part of your wage. And it’s even more unpleasant to feel the sword of Damocles of penalties for late payment.
What if you are prone to depression? Maybe peace of mind costs more than the positive emotions of the acquired good?
#6 Economical Inexpediency
The lending makes sense if borrowed money is spent on assets that bring income (equipment, goods for trade, and so on) and only if these earnings can recoup all payments and bring net profit in the foreseeable future.
But if the profitability of the financed facility is low, then the last, and seventh reason comes into play.
Living in debt is wrong. A-priory. And please don’t use the excuses like “everybody does it.” Don’t drown your conscience, and it will tell you that there are many dubious “benefits” in goods on which you want to spend the borrowed money. The idea of living at another’s expense is wrong in essence.
Of course, there are moments when it is necessary to briefly borrow money for treatment or food. However, even in these cases, it’s internally wrong to assume the loan life as a normal concept of existence.
According to psychologists, to get inaccessible things, you have to change your way of thinking. Wealth and poverty are in our minds. Work on increasing revenues; at least consider the probability of such an increase in the future.
When you are sure that your earnings have a strong tendency for constant growth and even more confident that the risk of the reverse trend is minimal, then you can think about taking a loan. Well, do you have these confidences?
Lucy Adams is a professional writer from a service that provides Buzzessay writing company. She is strong not just in writing, but also in researching and analyzing a great amount of information. Lucy is a generalist, able to bring to life your craziest ideas. Ping her if you want to get a high-quality paper at no cost.