Is Obtaining Loans Always Beneficial or There May be A Second Thought?
The present-day liberal finance situation has made it very easy to get loans for people. People even get loans for very simple things. People buy even a handkerchief using credit cards.
The ease of getting a loan has made us dependent on loans and credits. There are a variety of loans available, loans for bad credit, personal loans, payday loans, even doorstep loans on benefits in UK. People use loan money as if it is their own.
Later they end up with bad credit, poor financial conditions and loads of debts. Very few people realize the importance of managing finance. Most lack the need to budget and plan their finance.
Personal Loan: A Friend or Evil in disguise
A personal loan is one of the most popular loans in the UK. Most people take out these loans, but they fail to realize that these are one of the costliest types of lending. Personal loan interest rates typically vary from 7 per cent to 10 per cent each year.
These are unsecured loans, which means there is no collateral or guarantor requirement. Since these loans are unsecured, the interest rate tends to be greater than a secured loan.
Personal loans can be a saviour in case of emergency needs of funds, such as medical bills or other situations. It is easier to take out up to a 1000-pound loan with bad credit for emergencies. These loans can appear as saviours in case of emergency.
The problem begins when people take out a loan to meet lifestyle and aspirational goals, like buying a branded fashion accessory or costly phones. People even get loans for vacations and weddings.
I have compiled a list of things for which people take out personal loans most frequently. Here are the reasons why everyone should avoid taking out a personal loan.
Taking out a loan for vacation
Everyone loves travelling. But travelling costs money, from booking tickets to hotels, food, going places. Holidays are becoming much more expensive now with changing world.
People travel only after planning and saving. The expense of travel depends on location and season. During peak season, ticket prices double, hotels and everything cost almost double.
If you take out a loan for the holidays, it may seem easier at the time, but the total cost would rise. The thing to remember is the loan money is not yours, and you must pay it back no matter what.
It limits your overall financial flexibility to deal with future rainy days in your financial circumstances. The interest rate is also very high since these are unsecured loans.
My suggestion is to avoid taking personal loans for travelling and vacationing. Take time and save your money, travel on your expenses.
Loan to fund your wedding
Everyone desires a fairy-tale wedding. A flawless wedding takes a great deal of thinking and planning. The number of wedding alternatives and privileges has increased substantially in recent years, costing an average of £22,500.
Most people step beyond their comfort zones to indulge and splurge to make their day wonderful. People even get personal loans to make their wedding beautiful and unique.
Instead of taking out a loan to pay for your wedding, I suggest that you should save for it. Planning a budget wedding is not easy, but it can be arranged if you play smart and are willing to sacrifice magical factors. Managing finances are most important.
Loan for maintenance of an expensive lifestyle
Imagine this! Having pricey electronic gadgets, high-end smartphones, wearing expensive designer clothes and dining at high-end restaurants frequently sounds amazing, right?
Who would say no to this stuff, but bearing these costs is not as simple as thinking? Many youngsters make the mistake of taking personal loans to buy expensive stuff and finally end up with huge debts and poor credit scores.
Due to peer pressure and the simple availability of personal loans, many end up splurging on these lifestyle costs. This is the worst reason to take out a loan.
Think about your financial conditions. It is not the best financial strategy if you can’t afford it and have to borrow money to acquire it.
My suggestion is to avoid taking loans to buy luxury. Save money, raise your financial situation.
Loan to pay off existing loans
Past mistakes can always come out to haunt. You took out multiple loans from multiple places, and now you are struggling with various loans. Some people make the mistake of taking out another loan to pay up their existing loan.
You should not take out another loan if you already have one and cannot repay it. This type of conduct can lead to debt.
It is a trap that will keep you under financial stress for longer than you can imagine. Taking out a personal loan may seem easy, but interest rates will take your financial boat down, as discussed earlier.
My advice is to convert high interest into a lower interest rate if the possibility arises. Talk to the lenders and take advantage of it.
Taking a loan can be essential for some people. But in many cases taking out a loan is not advised by the financial advisor. The loan should not be taken out unless the situation is considered an emergency. And if you can’t pay up your loan on time, it might have several adverse effects on your finances. It disturbs your credit score.
Ailsa Adam is the Editor-in-Chief and former content head at Hugeloanlender. She has been a valuable member of the content strategy team since 2017 due to her abundant experience in the finance sector. Passionate about helping individuals navigate the world of loans and personal finance, she has dedicated herself to acquiring extensive knowledge on various financial products. Before her role at Hugeloanlender,
Ailsa worked as a seasoned journalist and writer, specialising in creating informative blogs and articles on diverse loan types. She is known for her meticulous research and commitment to delivering accurate and engaging content. She holds a degree in MBA Finance and has a keen interest in creative writing and art.