5 Situations Where Borrowing Makes Perfect Sense

Monday Jun. 28th, 2021


There are many myths about money. One of the most dangerous ones is that borrowing is never a good idea. In fact, the entire global economy is based on the concept of borrowing and repaying. Unfortunately, it is possible for people, and corporations and governments, to let things get out of control. But the basic idea of borrowing should not be viewed in a negative light. There are at least five times in the average person's life when it's not only a good idea but the only way to deal with a particular situation. Provided you take out loans in good faith, repay them on time, and don't pay excessive interest, the whole process can be to your advantage. When does it make sense to take out a loan? Here are common examples.

Buying a Home
Few working adults have the cash to buy a home outright. That's why nearly every homeowner starts out with a mortgage loan to obtain their first residence. Of course, contracts vary greatly in terms of interest rates, amount owed, down payment percentages, closing costs, and other components. Repaying a home mortgage on time is one of the best ways to improve personal credit scores.

Paying For a College Degree
What's true for acquiring a house applies to getting a college degree as well. Many prospective students borrow from private lenders in order to get competitive rates and flexible financing agreements. Each year, first-time and returning degree candidates turn to Earnest private student loans to cover all their school-related expenses. Four-year degrees, master's programs, and doctoral studies can call for ongoing access to sensible student loans.

Purchasing a Car
Car loans are one of the most common consumer forms of indebtedness. Even older teens are familiar with the basics of these financial arrangements. You pay a certain amount down, perhaps get credit for a trade-in, agree to make regular payments for several years at a fixed rate of interest, and you own the car when it's paid off. People do buy cars for cash, but for young couples and professionals, the standard way to purchase a vehicle is to pay it off over a period of years.

Acquiring a Business
Even wealthy individuals tend to finance the purchase of a business, whether the entity is an independent company or a franchise. The main reason so few people pay cash to buy a business is that the prices are so high. Even a small company might sell for millions of dollars. The solution? Going into debt to acquire ownership and operate the organization your way, on your terms. Some banks specialize in providing the financial wherewithal for people who buy and sell businesses, just as some financial institutions concentrate on mortgages or vehicle financing.

Covering Emergency Expenses
What happens if you face a financial emergency that you don't have cash ready to cover? Unless selling your car or taking out a second mortgage is an option, you'll probably consider an unsecured loan. The better your credit scores, the better deal you'll get, of course. The point is that when unexpected medical bills arrive or a similar emergency rears its head, borrowing is often the wisest option.