Thanks to record low interest rates, and the fact that nobody wants to save their money anymore, borrowing has become a part of everyday life. People now borrow for all sorts of things that they never used to borrow for in the past. You can now get personal loans that will finance a holiday or pay for vet bills. But is this the most sensible way to use borrowed money? Probably not.
Before credit became so cheap and freely available, people only used to borrow to finance projects that would pay off in the future. In other words, they put their money into things that would pay them back and cover any interest payments that had accrued. It was still a risky business, but at least there was the chance of a return. Now, however, we’re seeing personal loans doled out just to pay the bills and it’s unsustainable
One of the cheaper places to go to get a personal loan is secured loan lenders. They tend to be cheaper because the lending company has collateral. In other words, if you don’t repay the loan, the lender can take some of your assets in lieu of payment. If you are looking to get a personal loan, these are some of the more reasonable lenders out there. You can expect a loan of £1,000 to cost you around £90 over twelve months at today’s rates, which isn’t bad.
But more importantly, what should you spend that loan on? Usually, it’s only worth going into debt if there is good reason to believe that by doing so, you’ll be better off in the future. One popular path that everybody has heard of is using credit to start a business. Perhaps you’re an entrepreneur and you’ve seen an opportunity in the market.
If you’re anything like most people, you don’t have enough money to make your vision a reality. But you know if you do make it a reality, you’ll see a large return on your initial investment. This is where taking out a loan can really come in handy. The people that make the most money are the people who know that in order to make money, you have to spend money.
But there are other situations in which taking out a loan makes sense. Suppose for example that you’ve been offered a job that pays £10,000 a year more than your current job. That’s fine, but the job requires a car and you don’t have one.
In this case, taking out a loan on a car is a form of investment. By buying the car, you’ve generated access to an extra £10,000 a year. This means that it’s worth going into debt because of the greater return in the future.
This type of strategy is also commonly employed in housing. Taking out a loan to make home improvements can often increase the value of the home more than the total to be repaid on the loan.