Why Loans Can Be Good For You

Loans are tricky. They have the potential to break you but they can also make you in a big way if you put them to good use. All you need is the right reason to borrow and the right mindset to repay the debt on time.

Loans taken to acquire an asset, whose value appreciates in the long run, can be a good thing. Loans taken to finance an asset, whose value depreciates quickly, may not be in your best interests.

That said, never taking a loan, too, can impact you negatively: without a loan, you would never develop a credit history, which is often the basis for lending institutions to provide you a loan.

Additional Reading: Get Instant Approval On Loans And Credit Cards

Let’s take a look at how loans can be good for your financial well-being.

• Before lending, banks refer to a person’s credit report in order to get an understanding of his credit repayment habits. The credit report is a measure of a person’s creditworthiness. So, not having a credit history at all may not help if you are applying for a loan or a Credit Card. Without a Credit Score, you may be worse off than a person whose income may be lower and Credit Score higher than yours.

If you don’t have any credit history, you can start off by getting a secured Credit Card against a bank Fixed Deposit or by taking a small Personal Loan. Timely repayment of Credit Card bills and loans over a period of time will create your credit history with a favourable Credit Score.

• Loans taken towards purchasing a house or funding education offer tax benefits along with the fulfilment of your life goals and dream. If you take a Home Loan, you can get a tax rebate of up to Rs. 1.5 lakh on the principal amount and Rs.2 lakhs on the interest payment. Similarly, education loans allow deduction on the interest payment.

• Taking a loan makes a person responsible as the onus of repayment lies with the borrower. In order to make timely repayments, one needs to be financially disciplined, thus learning how to balance income, spending, and savings. One can learn the importance of budgetary allocations, how to increase savings, and so on.

Factors You Must Consider To Ensure You Are Getting Into A Good Loan

• It must provide tax benefits
• It should help you purchase an appreciating asset wherein your returns outweigh the costs
• You are seeking the loan to fulfil your needs and not wants
• The EMI is not more than 40% of your monthly income

If you have a loan, fret not. Use it as an instrument to improve your financial health by investing it in the right places. As long as your loan fetches tax benefits and allows you to buy appreciating assets, you are on the right side. A well-planned budget can take care of the rest.