Even though getting a loan can get you out of immediate financial trouble or help you buy something you need, there are also times when it's not a good idea. If you don't watch out, taking out a loan could be the worst thing that could happen to you. Here are some reasons why it might not be a good idea to get a loan:
As a last resort, loans
If you don't have any other way to pay for something, you shouldn't take out a loan. If you already owe money on your credit cards and overdraft and have no other way to get money, you shouldn't get a loan. If you only get a loan as a last resort, you will get deeper into debt and may not be able to keep up with the payments.
Getting what you want
Loans should only be taken out when you need them or when they can help you financially. It's not a good idea to take out a loan to buy something you really want but can't afford. Loans should only be used for things you need, not for things like clothes or electronics you really want but can't afford right now.
You want to buy a house or land.
If you want to buy a house but your mortgage lender won't give you any more money, you might be tempted to get a loan to pay for the down payment. This is a bad idea because you will end up borrowing more money than the house is worth. People often say that mortgage lenders are too nice, so borrowing more than they can offer is a bad idea.
You have seen a deal that can't be beat.
If you're thinking about getting a loan because an ad you got today offers a great rate that seems impossible to beat, stop and think about what you're doing. Usually, if a loan deal seems too good to be true, it is. Very rarely do the rates advertised match the average rate you'll get, and there may be hidden fees that aren't advertised. If the only reason you want the loan is because of the deal, you might not need one.
Why would you want to borrow money?
There are, of course, many good reasons to take out a loan, such as:
You need to buy something, but you can't pay for it all at once.
You know you can pay back the loan because you've done the math.
You want to combine your debts and have set aside money for the loan.
You need a "bridging loan" for real estate.
You want to buy a car, but you don't want to use rent-to-own.
If you think you need a loan for good reasons, then things should go well for you. But you should think carefully before taking out the loan. If your reasons aren't good, you should try to cut your spending instead of adding to your debt.
