When Should You Not Take Out A Loan?
Loans can be convenient ways to pay for emergency costs and they can sometimes be necessary for making big investments such as buying a home or starting a business, however they shouldn’t always be the go-to option when you need to raise funds. Here are a few situations when you definitely shouldn’t rely on a loan.
Paying for a vacation
In most instances, you shouldn’t pay for a vacation with a loan. A vacation is a treat that you should feel you’ve truly earned and for this reason saving up is often the better option. The post-vacation blues is also bad enough without then having to pay loan installments – you may end up regretting your trip instead.
Going on a shopping spree
Unless you need to buy essentials like food, you also shouldn’t take out a loan to go shopping. This includes finance schemes on must-have gadgets and using a credit card to treat yourself to a new handbag. Furniture and clothes can be a grey area – consider whether you physically need it or whether it’s just something you want.
Funding a gambling habit
You should never take out a loan to gamble with. If you lose this money gambling, it will all be for nothing and you’ll still have to pay back the money you borrowed. Resorting to loans is usually a sign that you’re no longer gambling sensibly – only gamble what you can afford.
Paying off other debts
Paying off debts with other debts usually results in the debt simply growing – you’ve simply replaced it with another debt. The only exception to this is refinancing when you take out a low interest loan to pay off a high interest loan as a way of saving you money in the long run. You’re much better off focusing on extra ways to make money so that you can pay off your existing debts more quickly. Talking to your creditors may also help – sometimes you can negotiate with lenders if you’re struggling to pay existing debts and opt for more affordable installments or temporarily freezed payments.
Taking out a loan on behalf of someone else
Taking out a loan on behalf of someone else is dangerous. If they can’t take out a loan themselves, it’s usually a sign that their credit score is too low and that they’re not good at paying back their debts. There’s no guarantee that they’ll be able to pay you back and they’ll you be stuck paying off the loan yourself. If you can’t afford to do this, you could even end up damaging your credit score for a loan that wasn’t even yours.
Borrowing with a bad credit score
Many lenders won’t accept you with a bad credit score and those that do will charge a lot of interest. As a rule, you should try to avoid taking out loans with a bad credit score unless it’s an emergency. Credit builder loans are the only exception as these will help to build back your credit, however you need to be certain that you can pay this loan back.