Some “Not-smart” reasons to take out a loan
We’ve all been there. That moment when you reluctantly start browsing online for a financial service provider that would grant you a loan.
Whether you need a payday loan or more sizable finance, it could either be an exciting process or a nightmarish one. A few examples of loans to get excited about include home loans, vehicle finance, study loans and business capital finance.
Now these are some of the few cases it would be considered a good idea to get a loan. Here are a few outright terrible ideas to get a loan.
- A small loan because your salary didn’t make it half way through the month
This is an easy trap to fall into. As soon as you run out of money, you take out a payday loan online or borrow against your possessions at a pawn shop. The alluring thing is you only have to worry about the payment the following month, after pay day. The simple flaw in this lending model, however, is 100 per cent to the lender’s benefit. If you earn R6000 per month in salary income and your expenses (living costs included) amount to R6700, you have a shortfall of R700. Now naturally, you would cover all expenses in order of priority. When you get to the spending money portion of the budget, you take out a loan. The problem is, you already have a shortfall, now you are creating another one. If you borrow R700 and pay it back with interest the next month, you could sit with around R7480 in expenses the next month, and only R6000 to cover it with. So, what do we do? Take out another payday loan. And so we do exactly what those lenders rely on; fall into their interest-heavy debt trap. Once we are on their list of monthly clients, they will gain money via interest and we will lose money on repayments. Stay far away from this risk, and if it must, make sure you can afford the repayment.
- A loan to buy the latest television or any other gadget that you must have now
Let’s be honest here, buying on finance is very expensive. While it’s a way of organising your finances and it could be used as a debit facility, in-store finance is a bad way to support your impulse buying habits. Rather start saving to buy all the luxuries your heart desires.
- A loan secured against your goods
Unless it’s one of your possessions you don’t need or want anymore, it’s a very bad idea securing a loan against your goods. The general rule of thumb when looking to take this approach is to ask yourself whether you can go without whatever the loan is secured against. If not, be prepared for that risk that you might just lose your possessions.
- A loan just because you have been approached to take one out
This is the worst one of all, and quite a dirty trick lenders use to secure new business. You receive an SMS saying that you have pre-qualified for a loan. So you contact them (go through the entire application process), find out how much (or have your application rejected), and possibly wait for the money paid into your account. After all of that, now you have to figure out what you want to use the money for. Just don’t do it.
Other honourable mentions include getting a credit card to improve your lifestyle. It’s in no way a bonus, rather an emergency fund.
If you are currently in one of these situations or have taken debt too far, contact Senator Counsellors on 012 654 0107.