I want it today, I want it tomorrow, I want it now! Veruca Salt sang it best in the 1971 classic Charlie and the Chocolate factory, her song ending rather fittingly with her being deemed a ‘bad egg’ and sucked down a chute. Taking out a loan can make you feel like Verruca, you get what you want now, but you better be prepared to pay the price.
Taking out a loan is a fantastic way of getting what you want now, but it can also teach you a lot about money and life. From a home loan with the best rates to a small personal loan with restrictive interest rates, the variety of loans is staggering. The range of loans may be wide, but successfully managing a loan is all about focus.
You will learn to be responsible.
By taking out a loan, you agree to a lender’s terms and conditions. It’s your responsibility to read the fine print and make sure you understand the contract you are singing. By entering a legally binding contract you are forced to be responsible for making repayments on time. In my family getting a small car loan was a right of passage into adulthood. We quickly learned to be responsible with our money, a debt collection agency breathing down our necks was a scary thought.
You are building lifelong habits.
One of the best financial lessons you can learn is the value of savings. A proven ability to save looks good on any loan application. Having a savings nest egg can help you avoid taking out a loan in emergencies. By taking out a loan, you can witness the power of consistent regular payments first hand. Maybe paying off a loan will inspire you to save extra hard!
You will learn the value of assets.
When it comes time to apply for a home loan, you will notice the interest rates are much lower than a personal loan. This is because a home loan puts up the home you are buying as collateral against the loan. Applying for any loan will be easier with assets, something only a loan can teach.
You are investing in the future.
While I don’t recommend taking out a loan for something frivolous like a holiday, sometimes you need what you need when you need it. A home loan is a different beast. A home loan allows you to obtain a piece of property now while paying it off slowly into the future.
A long-term loan can teach you the benefits of investing. A home loan allows you to purchase an asset that is beyond your means, allowing it to generate income for you sooner. Traditionally, land value has only increased, further proving the best time to invest is now.
It’s how the world works.
You may have heard the term “money makes the world go ‘round.” While mostly true, its debt that makes the world go around. It might shock you to know that world debt is %225 of the world GDP. This means that there is double the amount of debt as there is money. How can this be so?
Big money doesn’t just grow on trees, and for companies looking to start out, this money needs to be borrowed. Everyone from big business billionaires to small-town shop keepers has been (and usually still are) in debt.
Debt is nothing to fear; instead one must learn to embrace it. Taking out a purposeful loan and successfully repaying it will teach you all you need to know about debt, and in turn the ways of world. If you are in too much debt, a consolidation loan could move all your debts into one manageable account.
You can have your cake and eat it too… just make sure you pay it back.
The thrill of a successful loan application is near unrivaled. That special something you had your eye on can now be yours, no waiting, scrimping or saving needed. Unfortunately, every action has a reaction, Instant gratification is a potent intoxicant, and if you aren’t careful it can derail your life.
Spiraling into bad debt for material objects isn’t cool, it’s lame. A loan can teach you restraint and planning. Yes, you can have what you want now, but you will pay for it, with interest.
Banks don’t have your best interests in mind.
Shock and horror! Most banks aren’t interested in you or your personal situation. A loan application can feel invasive, impersonal, and if you are rejected, very disheartening. It’s a harsh lesson to learn, but an important one. A good lender can be hard to find, especially in the wake of a royal commission into the dodgy practice of some banks.
There are many unscrupulous lenders out there, lenders who will happily loan you large amounts of cash with little knowledge of your situation. Big banks were caught out in a relatively lightweight royal commission, which makes you wonder what else the financial sector is hiding.
Getting burned by a dodgy loan is a harsh lesson to learn, and perhaps an unnecessary one. Before signing any paperwork on a long term commitment with a bank, do your research carefully. As a general rule, avoid the big four (CBA, NAB, ANZ, and Westpac) and stick to a local lender like NPBS. Some banks offer amazing ‘honeymoon’ interest rates to get people signed up, neglecting to mention the nasty details hiding in the fine print.
Taking out a loan can be a big decision Whether you need to make urgent repairs or deal with unseen medical bills, a loan can help you find your feet quickly. The dark side of loans can rear its head when payments are missed, or terms and conditions aren’t understood properly. If you are new to loans, I suggest taking out a small personal loan to gain credit history and a feel for making regular repayments.
Few financial products can teach you more than the humble loan; from patience to responsibility the lessons encompassed in such a simple concept are incredible. Through applying for a loan one can gain insight into the world of finance and the appalling practices that take place in a supposedly regulated industry. A loan will teach you to be prepared for the future today.
To read more on topics like this, check out the finance category.