The Pros and Cons of Getting a Loan

Last Updated on

Maybe you are looking for a solution to pay a holiday debt, repair your house, or buy a home appliance. Regardless of the reason why you are applying for a loan, you need to review the basic facts. Know why you need the money and if it is indispensable before making a decision.

Getting a loan can be a double-edged sword in which you can enjoy its benefits. On the other hand, there is a high possibility that you might get into problems because of your loan. Below are some of the general perks and downsides of getting a loan that you should know about:

Pros of Getting a Loan

  • Flexibility

Bank loans are flexible in the sense that you are only required to submit your installments on a regular basis and in a timely manner. However, it is not the case with overdrafts. They demand that you provide the full amount as soon as the bank requests for it. Also, banks will not monitor the way you use your loan, so it allows you to invest the money in the way you deem fit. Its flexibility comes with peace of mind, and you can repay the loan without any problems if the flow of your income is sufficient. The dilemma only arises when you take a higher amount than you can pay.

  • Cost-Effectiveness

Bank loans give you a cheap option than credit cards or overdrafts. The interest rate charged on credit cards is high, and this could go up to 20 percent depending on your provider. So, bank loans are a good solution when you need money with fair interest. Most banks have a maximum rate that will not go beyond the agreed amount, so you are also secured against the exorbitant charges, which increases with time. The low interest charged could help you save money.

  • Enjoy Tax Benefits

If your bank loan is meant for business purposes, your interest payable is a tax-deductible expense. A good example is when you pay a 5% interest rate on a loan of $30,000, and from this, you are awarded an annual tax deductible.

  • Retained Profits

Many businesses that raise money through bank loans instead of issuing shares to raise capital to enjoy retained profits. Shareholders are being paid at a certain percentage of the profit, so instead of distributing shares, it is more beneficial to get a loan, which after repaying the principle and interest your business remains intact and no profit or assets are awarded to other people.

Cons of Getting a Loan

  • Strict Application

The application process of getting a loan is strict and difficult most of the times. You are required to submit a lot of documents to prove your eligibility to get the loan, and even then, your application can be rejected by a mere technicality. It also takes time before your loan gets approved, so in an emergency situation, unless you opt for a private lender, you might not benefit from a bank loan.

  • Cost of Loans

Loans come with some expenses. It could be a lot of money depending on the lending institution you’ve chosen to borrow. As a borrower, you are required to submit periodic payments and failure to do will put you at risk of getting penalties, which increases your burden.

It is the reason why sometimes companies consider raising money through shareholders. They deem it as a better solution because there is no burden of paying penalties or paying the loan at a specified date. Lastly, it is possible that the amount you’ve borrowed does not meet the needs of the business.

  • Irregular Payment Amounts

Loans that include variable interest rate don’t offer a fixed payment amount. It means that you might have to pay different interest at different times. You will have fixed rates depending on the market conditions. So, you cannot efficiently determine the amount you would need to pay in the future. As a result, it gets difficult to make reasonable financial plans.

As much as loans come with many advantages, there are some disadvantages you need to know about that can keep you in debt longer. Having an understanding of the gains, you get forms a loan, which will help you plan better and strategize your repayment schedule.

Getting a loan involves a lot of thinking and consideration. Sometimes, you’ll need a reliable financial institution behind you just to make sure you’re properly guided to make the right decision. And when it comes to getting the best loan, head on over to www.moneylend.net for a quick comparison chart you can use to get the best loan that suits you.

Leave a Reply

Your email address will not be published. Required fields are marked *