Written by R. A. Stewart
Are there circumstances when taking out a loan of some kind is justified?
The short answer is “”Yes” but only in exceptional circumstances.
Here is my list of things when borrowing can be justified.
- Buying a house
This can be the best investment you make. Can be because if you are not smart about
this then it can financially cripple you. At the peak of the covid crisis interest rates were
so low that house hunters took out huge mortgages but once interest rates rose it
affected their ability to service the loan. House hunters need to do their homework and
factor in the possibility of interest rate rises.
Purchasing a house is a major commitment which can lead to financial trouble if you do it
wrong. You have to do your homework before even considering purchasing a house
and work out how much you can afford to pay off each week. There will be rates and
insurance to pay as well as the mortgage and interest.
- Pay off a loan with a higher interest rate.
This is a good move. The savings you make here can go towards paying off your debts.
Dumb debt tends to have the highest interest rates so if you have some of that then you
need to question whether you really need to purchase stuff on credit.
- Purchasing a car
It is strongly advisable to purchase your car with as little borrowed money as possible. It
is also advisable to not pay more for your car than is necessary. Purchase from a
reputable retailer and not from some random individual. Taking out a loan to purchase a
A motor vehicle can be a necessary evil if the car is needed for your work or business. In
In the case of a business, any costs associated with the car are tax deductible.
If you are a responsible person you will have developed the savings habit you will have
some cash that can go towards the car which reduces the amount of borrowed money
needed to purchase the car. If you cannot even manage to save for a car then can you
even afford to have one? The running costs of a car are expensive with the rising fuel
costs, insurance, and parking costs. The question of whether yu can even afford to have
a car and whether there are other options available to you must be carefully considered.
- Purchasing a business
What do you need to consider when taking out a loan?
Here is a list of things to consider:
- How much can I afford to pay per week to service the loan?
- Can I obtain cheaper credit elsewhere?
- Is it really necessary to take out this loan?
- Will this loan help me achieve my financial goals?
- Taking out a student loan
Upskilling can pay off in the long run therefore, taking out a student loan can be
financially worthwhile if you choose the right course. You need to make sure that you
absolutely know what you want to do with your life because if you do not make use of
your qualifications then it can be a total waste of time and you will still be lumbered with
your student debt.
