If you need money, you will almost always find institutions or individuals who are ready and even eager to lend it to you. You might have credible institutions such as banks and credit unions, or you might have loan sharks and shady individuals hanging out on street corners. Hopefully, if you decide that you need a loan, you will utilize a well-regarded entity and not someone who will break your legs if you don’t pay them back promptly.
There are plenty of reasons you might decide to get a loan, and equally many that might lead you to decide that it’s a bad idea. Let’s cover some reasons to get a loan or not to get one.
You Can’t Work for a While
Lengthy unemployment would be one valid reason to get a loan. Unfortunately, there are plenty of people who are in that situation these days, what with Covid-19 ravaging so many industries.
Maybe you hurt yourself, and you have personal injury protection coverage, in which case, you’ll get 60% of your regular wages while you recover. Still, that may not be enough for rent or mortgage payments, utility and food bills, and so forth.
If you’re out of work for a very long time and you deplete your savings, you might decide that getting a loan is your best bet. If you go that route, though, you should at least try to find one that’s not too predatory. You’ll need to look at the interest rate that the bank or credit union will charge you since you’ll need to factor that in when you’re paying it back.
You Want to Start a Business
You also might decide that getting a loan makes sense because you have what you think is a fantastic business idea. You may feel like you’ve identified some service or product, and you’re sure there’s a ready market waiting for you.
This is one of the more common loan situations since, if you can present a bank or credit union with a viable business plan, they should have no issues giving you the money. They may turn you down if they feel like your project doesn’t make sense or you’re proposing a business model that doesn’t have any traction.
You Have Some Savings on Which You Can Live
Now, let’s talk about a couple of reasons not to get a loan. Maybe you’re in that scenario again where you’re out of work. Perhaps you are recovering from some injury or illness, or maybe the pandemic closed the establishment where you used to work, and you’re hunting for a new job.
You might have some savings that you can live on in the meantime. Maybe you don’t have a lot, but if you have some CDs that you can cash in or a 401K, now might be the time to utilize those resources.
This situation is not ideal because you must pay the penalty if you cash in a CD before it matures, and you’ll also pay one if you need that 401K or IRA money since those are retirement accounts.
Still, even if you have to pay those penalties, these are probably better solutions than getting a personal loan because when you get that loan, you have to worry about those potentially deadly interest payments.
You Can Start Living More Frugally
You also might be out of work for a while, and you’re thinking about getting a loan. You don’t want to do it, though, because you know about the interest you’ll have to pay.
You might not have very much in the way of savings, but you may be able to get along without a loan or a job for a while if you tighten your belt and start living frugally. Maybe you can get rid of unnecessary expenses like streaming services. You can save money if you’re no longer paying for Netflix, Amazon Prime, or Disney+.
You can save grocery money if you shop at Costco or Sam’s Club. You need a yearly membership, but once you have one, you can save money by stocking up on things like rice, beans, and canned goods. They might not be too exciting, but they’re nutritious, and they can last you a long time until your monetary situation improves.
There are certainly reasons both to get a loan and not to get one, so make sure you consider the pros and cons very carefully before you decide.