There has never been a better time to take out a loan. In the last 15 years borrowing has become easier for the average person. You can take out a wide range of loans to help you afford those important things in life.
However not everyone is sensible about borrowing money. Many see these financial products only as fast access to cash. They forget that not only will they have to pay the amount they have borrowed back but also the additional interest on top. Instead of borrowing responsibly they take the money and waste it on some of the dumbest things!
Here is a quick top 5 of the most common dumb reasons for taking out loans.
1. Holiday of a Lifetime
Many people would happily consider taking out a loan to pay for a once in a lifetime holiday. My friend actually did this and borrowed £4,000 for a two week luxury Caribbean cruise. She justified this by stating that ‘I could never afford to go otherwise’. Unfortunately this was exactly the reason why she should never have taken out the loan. Using loans to pay for luxury items you cannot afford is not responsible borrowing. In fact it is a bit reckless and it could take you years to pay off money borrowed for a short holiday, no matter how special it is.
2. Weddings
You may think it is a good idea to borrow some money towards a wedding. This could help you afford the wedding of your dreams. However this is actually a very bad idea. Essentially a wedding is a one-day event. It is lovely to arrange something special for your big day but you don’t have to go overboard. Just because you spend more money on a wedding does not automatically make it more special. Starting your married life in debt by taking out loans for weddings is a bad move and you could end up paying for it for years to come.
3. Gambling
Gambling is an exciting pastime and it is far too easy to get carried away. Too many people borrow money to use for gambling because they think they have a ‘sure bet’ or ‘dead cert’. Unfortunately there is no such thing as a 100% sure bet when it comes to gambling. You should never borrow money to gamble as you could end up losing it all. Then you would be left with a debt that could take a long time to pay off with nothing at all to show for it.
4. Helping out a Friend
This is a hard lesson to learn but you shouldn’t loan money to friends. The reality is that in most cases you will not see this money again, no matter how good the intentions of the borrower. You should certainly never borrow money yourself to lend to someone else. This debt will be in your name and so you will be solely responsible for it. This means you could end up paying the loan and interest back out of your own pocket if your so called friend lets you down.
5. A Sure Investment
Investments can be a good way to maximize your money and make a profit. However this is a bit like gambling in the sense that there is no such thing as a 100% certain investment. If you are investing money in a real estate project or stocks and shares then you will be taking a risk. This is why you should never use loans to fund investments. If the investment falls through you will be left with nothing to show for your money and years of repayments to still to make.
What You Should use Loans for
As you can see there are plenty of dumb reasons out there for taking out loans. You may think you are being sensible at the time and using the money for good. However you need to be realistic about how much the loan is going to cost you overall. Make sure you respect loans and use them for essential purchases that are going to directly benefit your life. Some of the top reasons why you should take
out a loan include:
- To consolidate bad debts into one single, manageable monthly repayment.
- Essential home improvements that add value to property.
- To ease temporary cash flow problems (when you know you have money coming in the future).
William Bancs is a first time author and prolific blogger. He loves to find out more about how to make money work harder and uses loans as a part of his financial plans.