Borrowing is not a savings devil unless, you know how to utilize this debt and increase your asset base.
It should factor in two main reasons:
- It should either fund an appreciating asset.
- Be repaid from a steady future stream of income, preferably both.
A loan helps the borrower and the larger economy as well when it enables asset-building by offering a funding source that was inaccessible.
In these times of heavy marketing by banks where each one seems to offer slightly higher rates of interest than the other, it becomes easy for the borrower to choose his appropriate lender.
The borrowers are put in a market where they have access to more number of lenders, get to choose between them and opt for those that provide shorter processing time and also which provide attractive product packages.
The investors, due to liquidity crunch, have moved towards investing more into real estate sector and gold. For those who have invested in property or are planning to take a loan will be preferred to hold the assets, rather than selling and re-allocating to a new asset. So, you can get to see and hear the increase in the volume of campaigns over the years.
But, making the best use of the loan is what is advised. It is very important to analyze who are the end users and how they are going to consume this debt. If the loan is being taken by a woman’s help group for starting a business activity, then there is some income generation and the ability to repay the debt is guaranteed. But if it is for financing foreign holiday needs, then there is no income that can be generated thereby increasing the defaulters.
All asset-building activities of households should enhance the net worth. A loan used to buy a house does so when the house’s value appreciates and exceeds the cost of the loan. This should be prudently followed by many home loan seekers.