Part of our How To series: Here is the Extract on loan advice ….
Loans Advice
“A sum of money or other valuables or consideration which an individual, group or other legal entity borrows from another individual, group or legal entity (the latter often being a financial institution) with the condition that it be returned or repaid at a later date (sometimes with interest).” [1]
People today can be defined as ‘consumers’, and the world many of us live in could also be described as a ‘consumerist society’. Almost everything we see is an advertisement for something; loose weight, a new car, 50% off everything, Christmas presents, take a holiday, best bank account… being bombarded with all these adverts can lead many of us to think we want or even ‘need’ to buy lots and lots of more stuff.
Why get a Loan?
‘It all boils down to balancing the amount you want to borrow with the time you think it will realistically take to repay the money.’ [2]
At one time, if we did not have the money for all this new stuff then we would have to save up; which would inevitably test how much we really wanted whatever was being advertised. However, in today’s society, if we can’t afford these extra things, then we can decide whether we are prepared to pay more than the asking price so that we can take out a loan and have it now. Loans, as most people are now well aware of due to current economic crisis, can be very financially damaging and get us into a right mess. There should be a vital lesson to be learnt by looking at the problems the banks are currently in; managing our desires against what we can and cannot repay is very important.
Prudent Minds gives 3 great tips:
“Never make a rush decision to buy the stuff they want Consider waiting until you can afford the stuff you want. Use a loan for stuff you want only if you can afford to repay the loan.” [3] When to get a loan?
It is sometimes prudent to use a loan to buy the stuff you need; including the stuff that in the long run will actually save you money. For example, buying a washing machine rather than using the launderette, or a new car instead of hiring one month after month.
The economic crisis in the world today has revealed how quickly a financial mess can creep up; by causing a build up of financial problems to the point where there are no quick fixes. Creating new problems to solve old problems just gets you into a bigger mess; this is why it so important to research the options carefully and ensure you understand all the implications of setting a loan.
Which Loan?
‘The basic types of finance include credit cards, personal loans, overdrafts, flexible loans, mortgage loans.’ [4]
Choosing one of these types of loans is very important, as making the wrong choice could lead to difficulties. It is not as easy as finding the lowest interest rate (which is what so many banks advertise). Make sure you consider the various loan parameters; it is also widely recommended to use a ‘loan calculator to experiment with different amortization parameters and observe the effect on the cost of the loan.’ [5]
The costs of the loan you choose will be much less if you first focus on loan parameters that are also just as important. Taking all this into account, and being more careful at watching your finances, we could change the way the ‘consumerist society’ is today; potentially preventing further economic crisis.
References
http://en.wiktionary.org/wiki/loan, loan (Wikitionary, Date N/A) http://www.uknetguide.co.uk/Finance/Article/Advice_For_Consumers_Taking_Out_A_Loan-100056.html, Advice for consumers taking our a Loan (UK Net Guide, Date N/A) http://www.prudentminds.com/loans.html, Loans (Prudent Minds, 2009)
Prudent Minds
How to Save Money
Saving Tips from Prudent Minds
“The wisdom of the prudent is to give thought to their ways” – Proverbs 14:8
Prudence has been recognised as a virtue for thousands of years.
These guides have been written with the objective of making it easy to understand how to save money.
Article from articlesbase.com
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