I know many of us sometimes wonder whether or not to borrow money. Some of you on the other hand borrow money quite frequently and as a result are in bondage to financial institutions and individuals. The other side of this coin is that there are individuals and institutions that take the risks in lending money to friends and family members and sometimes do not ever get repaid. It is fine to borrow money and it is ok to lend money but you should be very cautious in doing so. Obviously if you can avoid borrowing or lending that would be best option to steer clear of debt but there are circumstances in which you may just have to borrow.
The Do’s and Don’ts of borrowing
Borrow money if you are going to invest in something that will give you a return on your investment. For example if you are going to purchase a parcel of land or property for investment purposes and you are expecting a return on it, then go for it. If you need money to start a business and you believe your business will be profitable even after the loan deductions, then get a loan.
I know many of you want a home of your own. If you paying significant amount money in rent, then I would suggest you borrow for a home. However, build a quality home so that if later you decide to rent it, you can get rental income. Alternatively, design a home where you live in one part of the home and the other part is rented.
Don’t borrow money for vacation. Try your best to save for your vacation. Don’t borrow money to purchase a vehicle unless it is for taxi business or car rental purposes whereby you are expected to get a return.
If you have a credit card bill with a high outstanding balance and a high interest rate, it is ok to borrow at a lower rate to pay off credit card bills.
Don’t borrow money that has high interest rates attached to them. I know it is hard sometimes getting a loan approved from the traditional financial institution but try to be patient and save for the requirements from traditional institution. If you are an employee, ask your employer to lend you the funds at a reasonable rate and deduct it from your salary monthly.
Don’t just ask one financial institution. Shop around and borrow from the one that offers the best option.
Don’t lie about your income so you can get a loan and when it is time to repay you are unable to repay and you end up losing everything you worked so hard for.
The Do’s and Don’ts of lending
If you decide to lend money to anyone, ensure that it is in writing. Hold onto something as a collateral. I am aware of too many cases whereby you lend money to individuals but they never repay you. If you are willing to lend money to someone, don’t give them all the money up front. Test their repayment ability and lend them less or half of what they want and see if they will repay you. Charge a fee or interest when lending as that is an investment opportunity loss because you could have invested those funds elsewhere.
While borrowing money can create debt, it can also enhance the value of your life especially if your business that you borrow the money for becomes very successful. There is nothing wrong with borrowing but borrow for the right reasons and at the right rate.
If you are successful in borrowing money, my advice to you is to pay more than the minimum payment. If you pay one extra payment each year, you can save years of interest and of course shorter repayment. Please also ensure that you are saving something despite the loan you have to repay monthly.
Be careful lending money to individuals. Some individuals borrow money from you with no intention of repaying you. They think you have money and they don’t think they need to pay you back. It is wrong so be careful with lending money to others.