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Introduction
When we take out a loan, especially one of the smaller type loans, we are so focussed on what we are going to do with the money that we neglect to consider the numerous pitfalls involved. In this article I look at the negative implications of a loan and try to prepare you for what could possibly lie ahead.
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How a loan can affect us.
The first most obvious thing a loan does is to affect our cash flow. If we initially just had enough to scrape by, then we now will be unable to get by because of the extra payment. Often when we initially take out a loan all seems rosy, because we've got money in our pocket! At that time we do not think of the future payments. Unfortunately, these are very real and could come back to haunt you if you don't plan properly for them.
If we have a secured loan which is tied to some of our assets, like our house, we stand to lose those assets if we default. This will have very real influences on our life! In fact, we could be much worse off than we were before taking out the loan. This is especially true if a valuable item is sold under auction, by a creditor, to raise funds to pay off a lesser debt.
Each time you take out any sort of loan you put your credit rating on the line. A bad credit rating can affect your ability to acquire capital for many years to come and can negatively affect you and your family's future lifestyle. This can even lead to marital problems, when the marriage is not on a firm footing to start with!
In certain cases we have to give others access to our bank accounts, where they have first access to any newly deposited funds. We can lose control of our basic right to manage our own finances! This may not at first appear to be as blatant as I have stated it here, but if you look a bit deeper, this is what's happening.
When we loan in excess of what we actually need, and not just want, we end up with items that are often unnecessary. We struggle to pay back debt for things we do not even use! Before you get a loan make 100% sure that you really NEED the item, as opposed to just WANTing it! A good test is to ask yourself the question, "If I did buy this (house, car, ring) would I be better off next year this time?" If you can't answer it with a very positive "Yes!", don't do it!
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An aspect which is often not considered is the mental effects of having a loan. Basically, we become indebted to another human being (read also institution). We are suddenly at their call, i.e. we have to pay them come end of the month. We do not have any easy way to negotiate this after the loan documents are signed. If it is too much to bear, we become stressed by it. This stress then can manifest itself in family violence, depression, broken family relationships and broken marriages, for instance.
Conclusion
Remember that a loan is not always a negative thing, in fact the roof over your head was most probably built with a loan. Jobs are created with loans, etc., but there are pitfalls for the unwary!
Next time you consider a loan, consider these aspects as well.
Introduction
When we take out a loan, especially one of the smaller type loans, we are so focussed on what we are going to do with the money that we neglect to consider the numerous pitfalls involved. In this article I look at the negative implications of a loan and try to prepare you for what could possibly lie ahead.
How a loan can affect us.
The first most obvious thing a loan does is to affect our cash flow. If we initially just had enough to scrape by, then we now will be unable to get by because of the extra payment. Often when we initially take out a loan all seems rosy, because we've got money in our pocket! At that time we do not think of the future payments. Unfortunately, these are very real and could come back to haunt you if you don't plan properly for them.
If we have a secured loan which is tied to some of our assets, like our house, we stand to lose those assets if we default. This will have very real influences on our life! In fact, we could be much worse off than we were before taking out the loan. This is especially true if a valuable item is sold under auction, by a creditor, to raise funds to pay off a lesser debt.
Each time you take out any sort of loan you put your credit rating on the line. A bad credit rating can affect your ability to acquire capital for many years to come and can negatively affect you and your family's future lifestyle. This can even lead to marital problems, when the marriage is not on a firm footing to start with!
In certain cases we have to give others access to our bank accounts, where they have first access to any newly deposited funds. We can lose control of our basic right to manage our own finances! This may not at first appear to be as blatant as I have stated it here, but if you look a bit deeper, this is what's happening.
When we loan in excess of what we actually need, and not just want, we end up with items that are often unnecessary. We struggle to pay back debt for things we do not even use! Before you get a loan make 100% sure that you really NEED the item, as opposed to just WANTing it! A good test is to ask yourself the question, "If I did buy this (house, car, ring) would I be better off next year this time?" If you can't answer it with a very positive "Yes!", don't do it!
An aspect which is often not considered is the mental effects of having a loan. Basically, we become indebted to another human being (read also institution). We are suddenly at their call, i.e. we have to pay them come end of the month. We do not have any easy way to negotiate this after the loan documents are signed. If it is too much to bear, we become stressed by it. This stress then can manifest itself in family violence, depression, broken family relationships and broken marriages, for instance.
Conclusion
Remember that a loan is not always a negative thing, in fact the roof over your head was most probably built with a loan. Jobs are created with loans, etc., but there are pitfalls for the unwary!
Next time you consider a loan, consider these aspects as well.
I write these articles to help the average person who is having
financial problems. Having been there, and survived, I know what it
feels like and what some of the answers are!