June 3, 2021
Should I borrow money? What are the possible risks?
By : Ellie Brown
One of the most popular ways of driving out a financial crisis can be borrowing money. An age-old practice has been going on for a long. With the increasing demand of borrowers, some wealthy people also find lending an alternative way of the profession. Many of them began a money lending company where borrowers found the ease of borrowing because of less background verification and even a bad credit score.
However, apart from direct lenders, secured financial intermediaries like banks and non-banking bodies also provide monetary support to borrowers. These organisations always look for authentic borrowers who possess good credit score and stable financial background. To lend loans for people on benefits usually, these financial organisations process the application quickly so that it can mitigate urgent requirement of fund.
Undeniably, there are certain advantages and disadvantages of borrowing money. Therefore, if you are thinking about borrowing money, then you need to consider these things.
Benefits of borrowing:
- It can mitigate urgent requirement –
The primary reason for looking for a lender is the general requirement of an urgent fund. For instance, if you have purchased a new property and there is no money left with you to complete the renovation of the house, you can opt for borrowing.
Apart from that, suppose there is any medical emergency in your family, and you run out of all the savings, but the long medical bills have no intention to stop. Obviously, in that scenario, you are in serious requirement of cash.
Applying for an instant loan or payday loan, or even a text loan can quickly drive out the immediate requirement of fund. Therefore, if you have any exigency of liquid cash, then borrowing money will be a good option.
- Easy repayment option –
Instead of borrowing money from any lender, if you ask for financial help from any of your family, relatives or friends, they might not wish to provide monetary assistance because there is less possibility of asking for returning the money.
Although you might return, they might think you will not work due to the present situation at the initial stage. For this reason, borrowing money from money lenders or financial intermediaries is way better.
Moreover, whenever a borrower borrows money from a moneylender, he may offer a manageable repayment option. Usually, by uniform monthly repayment, one can quickly pay the entire outstanding amount.
This will really help a borrower as he needs not repay the whole amount at once. Besides, a borrower can pay both interest and principal during the repayment term.
- Ease of choosing tenure –
Depending upon the type of loan you are borrowing, the repayment tenure will be decided. For instance, if you are applying for a house loan, the lender may provide you with a maximum of 25 years to repay the complete due. Within this given term, a borrower needs to repay the whole sanctioned amount. For repaying a loan 25 years is not at all a short time.
Besides, when a person applies for a two-wheeler loan or education loan, the repayment term is comparatively smaller than a house loan. To pay the complete due of a personal loan, a borrower can be given a maximum of 5 years. Within that period, that person should complete the repayment.
- Ability to get a quality education –
Often orphans and students from below the poverty line fail to acquire higher education due to fund issue. With the help of education loan, even they are also able to obtain a higher degree.
Examples are not a few where students become successful by applying for education loan. Generally, you can apply for an education loan for studying outside of the UK.
If a student wishes to go abroad for higher studies, she can also apply for an overseas education loan. The budget of such a loan is designed so that apart from college fee, additional expenses like room rent, tuition fee, buying study material, and cost of living can all be done.
Risk of borrowing:
Borrowing is associated with risk for both the borrower and the lender. However, the percentage of risk is quite high for the borrower mostly.
- Chance of increasing bad credit –
Bad credit is such a dangerous concept that is associated with borrowing money. When a borrower is continuously borrowing money to repay a previous loan, it is called bad credit. Undoubtedly it affects the credit score and develops the habit of borrowing within a borrower. Therefore, it becomes difficult for a person to break the vicious cycle of life.
- Affect credit score and financial background –
While a good repayment history can improve the credit score, a bad one ruins the current credit score. The credit score is one of the most important criteria that need to be fulfilled by every borrower before applying for the loan.
Every lender sets some specific eligibility criteria where everyone definitely mentions ‘good credit score’. Now, this credit score depends upon how you repaid a loan in past years.
If you have taken any loan and repaid it successfully without being a defaulter, then there is a chance of improvement in your credit score. With an improved credit score, the picture of a healthy financial background also emerges.
Nevertheless, if you default any time, then the credit score and financial background both dropdown. For this reason, choose wisely before applying for a loan.