Why you shouldn’t be afraid of loans

MANILA, Philippines – Many of us grew up with the notion that borrowing money should be avoided at all costs. It’s something we learned from school books, religious scripture, and the sage advice of our parents and elders.

For the most part this advice holds true. There is peace of mind in the knowledge that you don’t owe anybody money. Being buried in payables can also give you anxiety, damage relationships, and jeopardize your plans for the future.

On the other hand, totally avoiding loans can backfire too. If you’re too afraid of borrowing money, you could be giving up on an opportunity for bigger things. Sometimes, avoiding debt can even make you lose more money – for example, renting a house versus paying for one you can actually own. (Read: 5 things you ought to do before that first car or house)

Debts by themselves are not evil. It’s the circumstances around it that can be painful. But in fact, a carefully planned loan can often work to your advantage. With the correct mindset and enough information, a loan can be a useful tool for you to achieve your aspirations today.

So when is it “OK” not to be afraid of loans? Here are 3 possible situations.

You can pay for the loan and live within your means

As a general rule, your regular source of income should cover the monthly cost of the loan payoff, on top of your budget for expenses and savings. If you will fall short of your savings and expenses, or if you don’t have a steady stream of income, then the loan might cause more harm than good.

In this case, taking out a loan can be also a way to check your spending and saving habits. What if you can give up that gym membership now, in order to fund an auto loan? (Take this quiz: Getting the car that suits your lifestyle) What if instead of burning money in rent every month, you can start paying for your own house instead?

When the loan will allow you to gain more

Let’s say you want to take out a loan to expand your business, or to enroll in a Master’s Degree. Will expanding the business lead you to more profit? Will taking the class lead you to a better-paying job or career opportunity? In these cases, the loan can be worth it, because it will enable you to gain back the amount you borrowed, and then some.

Consider what you will gain beyond finances too. You’ll have a secure and reliable source of funds — if and when the need arises. A personal loan or Installment Card can save your loved one’s life and give you peace of mind. In that case, wouldn’t the benefits be priceless?

You can trust the lender and you can pay on your own terms

Don’t take out a loan with the first company who will guarantee instant cash. The caveat with “fast approval” loans is that the payment scheme might not be as flexible, or you could be subject to exorbitant interest rates and other hidden charges.

Always have a thorough discussion with a financial adviser before applying for a loan. Ask about your options, check all the fees, and request for different payment scheme options. A good lender won’t give you money right away, because they are protecting their assets, and you as well. They’ll want to make sure that you’re truly ready for the responsibility and its accompanying reward. 

What are your own thoughts on loans? Are you afraid of them, or do you consider them a useful tool? Tell us. – Rappler.com

Whether you’re planning to settle down in your own home, drive your own car or expand your business, BDO can help address your financing needs.

• For Auto Loan information click here
• For Home Loan information click here
• For SME Loan information, click here
• For Personal Loan/Installment Card information, click here