Pros And Cons of Borrowing Money

Thursday, September 16, 2021


Is borrowing money always a bad thing?

Whenever you hear the word loan, often times there are negative connotations towards it. People who are against borrowing money often think that loans are not good for the finances. But there are also situations when we're left with no options but to borrow. Why do people resort to borrowing anyway? And what are the advantages and disadvantages of borrowing? Let's discuss them below. 

Pros of Borrowing Money

1. For Growth. By borrowing money, you get a large sum of money that you can use for personal or business projects. In a short period of time, you have enough funds to build your dream house, continue your studies, or buy a car that can improve your quality of life. Forbes talks about other Pros And Cons of Personal Loans.

Business-wise, borrowing money can help you expand your start-up, hire more people, or purchase technology to further improve your products or services. When business takes off, and money is managed will, you will be able to pay off your loans and really start earning.

2. Less Pressures. Depends on where you borrowed from, loaning usually comes with flexible repayment schemes. You can earn the loaned money over a longer period of time, and then pay smaller sums, usually monthly or quarterly for a year or so. Having payment terms is easier on the pockets compared to worrying about acquiring a huge amount in an instant.

Cons of Borrowing Money

1. High Interests. Financial institutions such as banks willingly lend money because they can earn from it through interests. Interest rates differ for every institution or type of loan you get. Personal loans usually get higher interest rates because of the high risk factor for the lender, but it's still the same concept whichever type of loan you avail. Borrowing money means you're putting out more money than what you pay for during one-time or upfront payment, as interest adds up over time. You can read more on the other types of loans here.

2. Risks. Having monetary loans mean you are indebted to a financial institution or a person. You have to  make sure you earn enough to pay on time, or it might affect your credit score which will make it difficult for you to borrow in the future. Borrowing also requires tedious application process since this involves money. It can be lengthy and complicated, with extensive background checks and verifications. You might have to submit collaterals or papers of your valuable assets to get approval. You have to consider a lot of variables before you fill up that application form.

What to Consider Before Borrowing

1. Assess your money flow. Are you earning enough to be able to pay on time? 

Borrowing money now will surely disrupt your cash flow in the future. You have to designate a certain amount during the whole repayment period, including interest. 

2. Time for serious adulting. Are you responsible enough to manage your finances?

One of the risks in loaning, as mentioned earlier, is forgetting due dates. This will really cause a dent in your finances. If putting everything on your planner or calendar is not enough to juggle several loan payments, you might want to consider

Debt Consolidation can help you in managing all your loans, put them in one place so won't miss any deadlines, and then pay for everything at one time. It can also serves as your financial tool where you can oversee all your existing expenses, and whether or not you are capable of acquiring new loans again.

These are just two things you have to look into before borrowing money. Loaning can be both a good thing or a risky business, so it's really up to your capability to pay and responsibility to do so on time. As the old adage on money goes, it is neither good nor evil--but a reflection of it's user.

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