Taking a loan helps you to improve your financial situation and also to relieve some burdens… when it’s done right.
A lot of us have to take a loan at some point or the other; whether it is to settle some pressing need or to take advantage of a timely opportunity. However, there are times when taking that loan might not be in your best interest.
In this article, we are going to discuss five (5) of those times when taking a loan might not be your best decision.
- WHEN YOU DON’T HAVE A SOURCE OF INCOME:
The exact structure of any loan necessitates a repayment. Without that, it might as well be a grant. That being said, taking a loan without a source of income means that you do not plan to repay it. Whether the source of income is a salary, business profits, investment returns or even gifts from friends and loved ones, a source of income must be available. A lot of lenders understand this and will need to be sure of a source of income before they approve a loan application. However, even if the lender is not a professional organization and doesn’t request for proof of a source of income, you should still be certain of a source of income before you take a loan from anyone.
- WHEN YOU DON’T HAVE A PLAYBACK PLAN / OR YOU WANT A LOAN THAT YOU CANNOT AFFORD TO REPAY:
Having a source of income is not enough, you also need to have a repayment plan. A repayment plan is basically a well thought out idea / decision, outlining the method to pay back a loan over a period of time (usually by fixed payments over the stipulated period).
If you cannot come up with an adequate plan, then perhaps you shouldn’t be in such a hurry to apply.
Another mitigating factor is applying for a loan that you cannot afford to repay. We’d advise that you only stick to what you can break down into achievable and attainable repayment plans.
- WHEN YOU HAVE OTHER UNPAID DEBTS:
Unfortunately, the law of “two negatives becoming a positive” does not apply to loans. If you have other financial liabilities it might be best to get yourself back to even grounds financially, before taking on other liabilities.
- WHEN YOU DON’T UNDERSTAND THE TERMS OF THE LOAN:
If you don’t remember any other thing from this article, remember this; IGNORANCE IS NOT BLISS. You should know exactly what you are getting into. What are the terms of the loan agreement? Popular factors to be considered in loan agreements are; the amount loaned, the interest rate, the amount to be paid in installments, when the first payment is due, what are the consequences of a default in payment?
- WHEN THE PURPOSE IS FOR A HIGH-RISK INVESTMENT:
This last point is not as finite as the others. No one is taking away the element of faith and miracles. However, when the purpose of the loan is to undertake a “High-risk” investment, it might not be wise to take a loan for those ventures. It would be better to use spare cash or to hinge the repayment plan on a definite source of income.