Some may think that taking a loan and going into debt will ultimately ruin or degrade their financial security in the long-term.
While this may be true if you don't have a plan to repay the loan, there are plenty of benefits to borrowing money. Let's take a look at when it may make sense to go into debt and the benefits a loan may provide.
You Have the Money But Interest Rates Are Low
When rates are low, you may be able to borrow the money and pay it back without incurring large finance charges or other fees.
Borrowing even when you can pay for an item outright may make sense if you can invest your cash and earn a return larger than the interest you pay on the loan.
For instance, instead of buying a house for $100,000 with all cash, you could instead put that money into an index fund and assume an average return of 7 percent.
After 30 years, you would have just over $761,000 without taking taxes into consideration. In comparison, you would pay just over $182,000 over 30 years on a mortgage for that house before taxes and insurance are added.
Therefore, you would have a profit of $500,000 before fees and other costs and before taking appreciation of the home into consideration.
You Have Equity in an Asset
Car title loans allow you to borrow against the value of your vehicle without having to sell it. After you pay the loan back, you could theoretically get another loan assuming that they car was still worth enough to a lender to use as collateral.
Home equity loans and lines of credit use the same concept of allowing you to borrow against the value of your home while using the property as collateral to secure the loan.
Build Your Credit
Even if you don't need a loan to make a purchase today, it is never a bad idea to build up your credit history. Making a token purchase on a credit card or taking out a small car loan can show lenders that you are responsible with debt.
This can come in handy when you are ready to apply for a mortgage or may need to borrow for any reason in the future. It is important to note that many credit cards come with perks such as free airline miles or discounts at various retailers to make it worth using on occasion.
Whether you are looking to access equity, want to use your cash for something else or simply want to build a credit history, loans can be beneficial for anyone. lonsdaletitleblog.weebly.com
Before you borrow, make sure to shop around to make sure that you get the best loan terms and flexibility when it comes to making payments.
Katie loves to write about finance and has a fashion blog.