When you need cash quickly, applying for a personal loan is often one of the best ways to have funds in your bank account by the end of the day. However, there seems to be an alarming trend of people getting a loan when they don’t really need one, and once someone starts to get into this habit then it can lead to money problems and even bankruptcy.
For this reason, it’s a good idea to understand exactly when you should get a loan and when to avoid one completely Keep reading to find out more.
When to get a loan:
Pay your bills
If you’re in a situation where you can’t pay your bills this month then a short term loan such as a payday loan could be the answer. This allows you to borrow a small amount until your next “payday,” where you can then instantly pay the money back once the wages hit your bank account.
Fund a major purchase
Buying something like a new car or house usually requires some form of a loan to help you complete the purchase, and without it you probably wouldn’t be a car or home owner. For example, a car dealership will finance you for a new car, or a mortgage company will loan you money when buying a house.
Start a business
As the old saying goes, “it takes money to make money,” and if you are thinking about starting up a new business then you’ll probably require some startup capital.
In order to reduce your risk, make sure you completely understand the business you are entering and have a business plan that shows exactly how you are going to get customers and make money.
When not to get a loan:
Buy consumer goods
The quickest way to get yourself into money trouble is to start taking out loans to buy consumer goods. Let’s say that you need $500 to buy the best coffee maker on the market right now, but you just don’t have that kind of cash in your bank account…do you get a loan for it?
Absolutely not, mainly due to the fact that it’s not an essential purchase and you will be fine without it. There is nothing wrong with buying consumer goods when you can afford them. Just don’t get a loan.
Go on vacation
Everybody needs a break now and again, but is it a good idea to apply for a loan in order to get the cash so you can on vacation? The answer is no, due to the fact that you don’t really have to spend any money on a vacation.
As an example, you could easily go camping for very little cost or even go to visit family or friends. Only go on an expensive vacation when you can easily afford it.