The global economic downturn and credit crunch has placed a large number of people under great financial pressure. Many are seeking loans to help give them short term respite from current money worries.
There are simply thousands of loan providers advertising in the press, on TV and online that they can help the desperate with quick loans. However, you should consider the long term consequences of taking out a loan and indeed whether you really need a loan at all.
Everyone’s financial circumstances will be different, so your first step should be to get a firm understanding of your current monthly outgoings and your current income. Without clear knowledge of your finances you will not be able to make an informed decision regarding whether taking out a loan is necessary and sensible.
Firstly, if you’re thinking of taking a loan to purchase something or perhaps take a vacation, think long and hard about whether you really need to buy that item or whether a less expensive UK based vacation is more sensible given your financial situation.
If you’re seeking a debt consolidation loan for existing debts, try to find a provider that can give you a longer repayment period, which will reduce the amount of your monthly repayments. Although you may have to pay more in the long run due to interest, the reduced monthly repayments will alleviate some financial pressure.
Unsecured loans for smaller amounts of money can help in the short term, but you must make sure you can keep up with the repayments, as penalty fees will only deepen your debt. Relying on loans can lead to the formation of bad borrowing habits. Consider whether you can save money by reducing your monthly spending in other ways before conducting research into the best loan deals available. There are even such things as zero percent loans.
Larger loans will usually be secured against your home or another type of property of substantial value. In the current climate this type of loan requires incredibly careful consideration and accurate budgeting before you sign any agreement.
Can you definitely keep up with the loan repayments? Is your job secure in this tough time of widespread job cuts? If you suddenly lose your job and still have a loan to repay you will be in an extremely difficult situation and could lose your house if you cannot keep up with your repayments.
Naturally, you must discuss any loan you’re considering with your spouse or partner, as they will also be liable for any debts secured against your jointly owned property. Financial difficulties can cause immense stress within relationships, so be sure to discuss all your financial arrangements in depth with each other.
If you have a good credit rating you will be able to secure a loan easily, but if you default on repayments for whatever reason, your credit rating and financial situation could turn bad very quickly.
Everybody’s financial situation is unique, but the current harsh economic climate means no loan should be taken out without serious consideration and planning. Get a good grip on the financial situation of your household, your income and outgoings, and think hard on whether the loan is absolutely necessary. If you ask me,saving for things like a house or car etc. is a much better option.
So, have you taken a loan out recently? Or, are you planning to do so?
This post was provided by Epiphany.
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You bring up some interesting points. As for me, I am done with consumer debt and have been that way for years. I refuse to work for the banks in that way 🙂
Good stuff. I like to hear that people are debt free. We are too apart from our mortgage and it feels great. Unfortunately there are many in worse off situations that really need some good guidance as to what to do.
I’m not taking a loan out now, nor do I plan to do so in the next 6 months – I’ve heard that now is a good time for great rates if you can get the great rate, but most cant.
The rate you do get does depend on your credit history and you’re right- many people’s credit is damaged right now. The high rates are still lower than historical rates but even still, if you can avoid a loan, do so. The good thing is that rates are expected to say low, at least in Canada, which means as people’s credit approves and they want to borrow to invest, they can do with a good rate. I think borrowing to invest is one of the only reasons one should get a loan.
From my own sad experience I should say that taking a loan is NEVER a good time. If you cannot afford it, don’t buy it. Save up for it. Of course emergencies happen all the time but that’s a different story.
Agreed. Unless you are borrowing to invest, loans should not be an option. I too have been stuck in the paying off the loan game and it does suck. And if you can save up an ER fund then even when crisis strikes you can still avoid borrowing.
Another good idea could be only take on a new loan after agreeing to start a daily or weekly budgeting system. Starting or improving one’s budgeting system can be a real pain and the truth is that get that new loan could be the only sufficient motivating factor.
1. 15 year mortgage on my primary residence
2. Two HELOC on rental properties.
I purchased additional properties with the HELOC’s and make more money using debt than I could ever make by buying the home out right. My risk is high by not using debt. An explanation of this would require a post of its own 🙂
I think if you are borrowing to invest or to make profits than you are doing ok. The problem is when people are just borrowing and not paying it back quickly. I think what you’re doing sounds pretty neat.
Loans do have their place for sure. I think the problem is people borrow too much and then they can’t pay it off. If you can borrow responsibly than you are good to go. Glad you don’t have any consumer debt. As far as I look at it your loan is investment debt and will be paid off in profits.
I need to investigate the difficulty of getting a loan on a residential rental property. We have great credit, but since I’m retired, the income is on the light side. I’m not sure how a lender would view the situation.
I don’t think it would be an issue in your situtation. If you are retired and have assets and are currently debt free and you want to use the money for a rental property you should be just fine. They can use the house as collateral if they have any concerns. I think you could get a pretty good rate. Let me know how it goes if you decide to apply.
You bring up some interesting points. As for me, I am done with consumer debt and have been that way for years. I refuse to work for the banks in that way 🙂
Me too. However, a lot of people aren’t in the same situation as us and still have debt. Loans seem like the best option on the surface.
Like Roshawn, I don’t have any consumer debt. So no immediate plans to take any type of loan.
Good stuff. I like to hear that people are debt free. We are too apart from our mortgage and it feels great. Unfortunately there are many in worse off situations that really need some good guidance as to what to do.
I’m not taking a loan out now, nor do I plan to do so in the next 6 months – I’ve heard that now is a good time for great rates if you can get the great rate, but most cant.
The rate you do get does depend on your credit history and you’re right- many people’s credit is damaged right now. The high rates are still lower than historical rates but even still, if you can avoid a loan, do so. The good thing is that rates are expected to say low, at least in Canada, which means as people’s credit approves and they want to borrow to invest, they can do with a good rate. I think borrowing to invest is one of the only reasons one should get a loan.
From my own sad experience I should say that taking a loan is NEVER a good time. If you cannot afford it, don’t buy it. Save up for it. Of course emergencies happen all the time but that’s a different story.
Agreed. Unless you are borrowing to invest, loans should not be an option. I too have been stuck in the paying off the loan game and it does suck. And if you can save up an ER fund then even when crisis strikes you can still avoid borrowing.
Another good idea could be only take on a new loan after agreeing to start a daily or weekly budgeting system. Starting or improving one’s budgeting system can be a real pain and the truth is that get that new loan could be the only sufficient motivating factor.
I think that taking a loan on when you don’t have a clear budget in place is a big mistake. All is going to do is make things worse.
I’ve taken out several loans recently.
1. 15 year mortgage on my primary residence
2. Two HELOC on rental properties.
I purchased additional properties with the HELOC’s and make more money using debt than I could ever make by buying the home out right. My risk is high by not using debt. An explanation of this would require a post of its own 🙂
I think if you are borrowing to invest or to make profits than you are doing ok. The problem is when people are just borrowing and not paying it back quickly. I think what you’re doing sounds pretty neat.
We took out a big loan to purchase a 4 plex.
We don’t have any consumer loan so at least we’re not saddle with high interest rate.
Loans do have their place for sure. I think the problem is people borrow too much and then they can’t pay it off. If you can borrow responsibly than you are good to go. Glad you don’t have any consumer debt. As far as I look at it your loan is investment debt and will be paid off in profits.
I need to investigate the difficulty of getting a loan on a residential rental property. We have great credit, but since I’m retired, the income is on the light side. I’m not sure how a lender would view the situation.
I don’t think it would be an issue in your situtation. If you are retired and have assets and are currently debt free and you want to use the money for a rental property you should be just fine. They can use the house as collateral if they have any concerns. I think you could get a pretty good rate. Let me know how it goes if you decide to apply.