A loan is a debt provided by a financial institution in exchange for future refund of the principal and the interest. The principal is the amount owed on a loan, and interest is the fee charged for the privilege of being granted the loan. Loans can either be secured or unsecured. A loan can be a good option if you need access to cash urgently, but it can also land you in serious trouble. A loan is a terrible idea if you can’t cover the debt in the agreed time frame. Let’s look at the benefits of applying for a loan
Easier option for quick cash
We can’t predict when we will be in need of money. Sometimes, irrespective of how well we take care of our body, illness can strike. Loans come in handy when you are in urgent need of cash to pay off your medical bill. If you are struggling to pay your household bills and other essentials, then a loan can also help. So long as you are employed, you have a regular salary, and you have a good credit score, then you should have numerous borrowing options.
1. Flexible repayment period
If you need a large sum of money for a big purchase, borrowing from a financial institution such as a bank means you will have more time to repay the loan. For instance, home loans have long repayment periods ranging anywhere from 15-30 years. Auto loans last for a short time frame, but you still have a number of years to repay off your car. The only drawback taking longer to repay off a loan is that you will end up paying a large amount in interest.
2. Fund a start-up business
If you are planning on setting up a business, odds are you will need some form of finance, which refers to the cash that finances your business. One major reason for failure of most small businesses is lack enough money to maintain business operations. With an efficient business loan, business can see rapid growth as long as they make use of the capital wisely. If the business is doing well, you can get another loan to set up a new business in the market.
3. Finance personal needs
If you want to travel, update your home, finance your wedding or pay off a big vacation, a loan can be of great help. For these, personal loans are available. Obtaining personal loans is usually very quickly, making it a great option for those who need access to cash quickly. Unlike a home or car loan, this type of loan doesn’t require much documentation and the interest rate is much lower. Also, you also don’t need collateral to obtain it.
While a loan offers a number of benefits (read more), it can cause you sleepless nights, especially if you are struggling to make ends meet. Prior to taking out a loan, make sure that you will have enough cash to cover the debt in the required time even if you encounter unforeseen financial difficulties like dismissal or pay cut.