Borrowing Money: What’s Good Debt and Bad Debt

Borrowing Money

A loan is typically defined as the lending of money by an individual, a company, an institution, or a bank. The borrower will be liable to pay based on the interest rate, which depends on their agreement with the lender.

 

Borrowing money is done for many reasons. That could be capital to start a brand-new business or to buy out a company from another owner. It can also be used to pay fees to start a franchise business. Some can also borrow money for personal reasons, like payment for a college education. Or it can be used to buy, build, or rent a new home.

 

Whatever your reason is, borrowing money is already a fact. For lenders, this is either good or a risky business, depending on their financial capability. For some borrowers, this is a good practice if you have the sure means to pay. But for others, this is a sad part of life if they are already deep into debt. 

 

You need to understand that there are good loans that are very much worthy of undertaking. But there are also bad loans that need wise and calculated decision-making. This article will discuss what they are.

 

What Are Good Loans?

 

Good loans are debt that helps you in many ways. It helps improve your life or business as it becomes leverage for your business to pick up and generate income. Or it benefits your wife and children’s welfare, making their lives better and easier now and in the future.

 

  • Business Loan

 

This one may come with a risk. But this is still considered a good loan, especially if the borrower is knowledgeable and passionate about their business venture. Add the fact that a businessman becomes their own boss. This makes them responsible for running the business, making sure that it makes money. 

 

Not only will it cover the loan and have it paid in full, but you also get to make money for yourself and your family. The loan even becomes more financially rewarding than a burden. As a result, this loan will turn out to be a good investment.

 

  • College Loan

 

This is one thing that is more important to anyone’s future. College loans are imperative not only for students but also for parents. This may seem an expense for most families, but the rewards are long-term. We all know that education is a gateway to a high-paying job. For someone with a vision, this makes college loans more of an investment than an expense.

 

  • Home Loan

 

We all know that a home provides shelter and security for the whole family, making a home mortgage more rewarding. Being a homeowner opens many doors for other opportunities. You do have the option to make the house you purchase your forever home. But at the same time, you have the power to decide if you want to make good money out of it by selling it for profit or buying another property. The possibilities are endless, and it starts with a home loan.

 

What Are Bad Loans?

 

When you get in debt to pay a depreciating asset, it is already a bad loan. The worst thing is that it might not make a profit, or it makes you lose more money. These are loans where you need to make wise decision-making. Otherwise, it is something that you and your family will regret in the long run.

 

  • Consumable Loan

 

This is also known as credit card debt. Having a credit card brings so much convenience. But when your bank statement comes and you don’t have the money to pay your purchases, then it becomes unwise. The worst thing is that all the purchased items are already consumed, or the value has already depreciated while you are still paying off the loans. It makes for a bad loan, which is clearly not worth it.

 

  • Car Loan

 

There is no doubt that a car is a necessity. It is a must-have nowadays, as it gives you power and control over your personal or family mobility. However, being in debt just for this is not a very wise financial decision. Your daily use, mileage, and wear and tear make it lose its value over time. 

 

By the time you want to sell it, it gets sold way cheaper than when you buy it. But if getting a loan is your only option to buy a car, the best solution is to get it for zero interest. And try your best to pay it out through a short-term loan. The shorter time you pay for it, the more it becomes worth your troubles.

 

Final Thoughts

 

All loans need commitment and are a huge responsibility. Debt is good if you have the means to pay. So it is crucial not to be impulsive when applying for a loan. Think about it and consult your loved ones before you make the first move. Remember that what you want is value for your money, especially if it is hard-earned.

 

 

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