Six Everyday Situations Where It’s Acceptable To Request A Loan
Loans tend to be a tricky subject in the world of finance, because ideally, you’d never need one if you could help it. In the real world however, plenty of fiscally responsible people find themselves in need of a loan for legitimate reasons.
Necessary or unplanned, financial emergencies happen. Or maybe you’re looking to make a big purchase; there are multiple reasons on why it may be necessary to take out a loan. Find out when it’s more than reasonable for a new loan to occur.
1. You Can Easily Afford the Loan Payments
This could quite possibly be a no-brainer, but when people become desperate they will sometimes undertake loans with rather large payments that they couldn’t possibly afford. Before you think about taking out a loan, create a realistic budget and factor in interest and payments. If you can’t afford it, you should most certainly reconsider taking out the loan.
Avoid falling into the temptation of lying to yourself, and avoid the mistake of thinking you will make ends meet…eventually. Instead, secure any extra monetary resources before you sign on the dotted line of this new loan. Maybe think of getting a second job, consider freelance, and sell extra stuff lying around the house. Get creative, and find extra ways you can make some money. The harder you work for it, the more rewarding it will be. The last thing you want to do is create financial stress on you and possibly people in your family. Loans are supposed to help relieve financial stress.
2. Your Purchase Is Essential
Never use loans for financing a lifestyle that is beyond your means. However, if you find yourself in a situation where it’s absolutely necessary that you purchase this item, or thing a loan might be your answer. Keep in mind, remodeling a kitchen or a Hawaiian vacation are not essentials.
This situation is only applicable to basic, bare essentials. If driving to work is necessary, you need to have a working vehicle. If you live in a cold climate, having heat is necessary. Often times, these aren’t purchases that can wait. A loan will help in any situation where you need the money a.s.a.p. to satisfy a need, not a want.
3. You Have Good Credit
Do you have good credit? Good credit is considered a score above a 720. Having this kind of credit score will make you eligible for lower interest rates on your loans, shop around until you find this offer. Having lower interest rates means you’ll pay less over the course of the loan and your individual payments will be lower. It pays to have good credit, literally! On the other hand, if you have good credit people will see you as being more capable of managing your payments and debt more effectively.
Moral of the story…having good credit standings will make your loans a lot more affordable. Don’t forget though, making the payments on the loan is the most important part; otherwise you could lose your good credit score.
4. Interest Payments Are Less Than Your Investment Returns
Investors sometime think that they should/could use money from their investments to make big purchases before considering a loan. While this is sometimes true, it’s possible that leaving the investments you’ve build up, untouched and instead get a loan to cover your next big purchase.
If the rate of the loan is lower than the rate of return, and you have the ability to pay the loan payments, then take the loan and keep the money that you have invested. It will be worth it in the long run.
Another way to approach the situation is, the monies from your portfolio might come in handy when trying to re-pay very high interest loans, i.e. credit cards. It would be wise to never touch your emergency fund, that’s money you should be saving for true emergencies. If you’re facing bankruptcy or some kind of legal action, high interest debt can’t quite be considered a true emergency that permits depleting your safety net of saved interest money.
5. You Can Pay It Off Early
Oftentimes you know there’s money coming in…you just don’t have it quite yet. If you’re planning on making a big purchase before that money is in your bank account, you can take out a loan. But be cautious, and make sure to repay the loan as soon as those expected funds hit your bank account.
If you’re taking this approach, make sure in advance that your loan does not have any prepayment penalties that can catch you off guard. This kind of loan strategy can work very well for people who receive a large bonus or a commission check on a yearly or quarterly basis…that is as long as you don’t miscalculate your actual earnings.
6. You Qualify for a “Special” Loan
There are several “special” loans that are offered; most vary by different government programs, such as home buying, education or energy-efficiency retrofitting. These particular loans often offer favorable repayment terms, which in the end makes them very worthwhile.
Some loans that fall under this category are; FHA loans, VA loans and USDA loans. All of these “special” loans can help people afford homes who might have not qualified otherwise.
Loans may not be the most ideal thing for any responsibly financial person; however, sometimes they’re necessary to meet a larger goal. What do you think, are loans worth it in the long run?
