This week I would like to talk to you my fear of loans. Yes, that’s right, my fear of loans. It is something that I am determined to avoid at all cost if I can, (pardon the pun). I have been opposed to all type of loans from day one. Let me explain.
For as long as I can remember I have hated owing people money. It makes me feel uneasy, stressed and frustrated. I had to borrow money a lot from friends and family growing up to compensate for my own reckless spending. I hated it. I was constantly stressed anytime I owed people money. I just hate this looming cloud of “money to be paid” over me. I even refuse to switch my mobile phone contract to bill pay (monthly payment) as I feel I am tied down by a contract and that stresses me out. I pay for my mobile data when I need it and if I can’t afford it when I need it then I just won’t pay it until I can afford it. This is just one every day example of how I think towards loans and being tied down to contacts in general. If I can avoid borrowing money I would do so at all cost. I foresee a lot of life events in the future that may require a hefty loan such as house, education, kids etc. Although, these expenses are in the distant future I beginning to panic about them now. I am putting measures in place now to try and avoid the need of a loan in the future. Of course, there are certain loans you can’t avoid, such as mortgage or education for my future kids etc. However, I can try my best to avoid certain loans such as buying new car, wedding etc. by preparing for these expenses now that I am young.
I have several issues with applying for a loan:
- You are tied down to a payment plan that you cannot get out of no matter what other life events get in your way (broken car, sick loved one etc.). So anything unforeseen occurs in your life you have to juggle this loan repayments as well as everything else. So if anything unforeseen occurs in your life you have to juggle this loan repayments as well as everything else.
- You have to pay a lot of interest on the loan that would cost you a lot more money (depending on how much the loan is for) than you would be paying if you used your own cash. You see if you applied for a €5,000 loan from the bank. The bank will happily give you that money but they will charge you probably about 7-10% interest on such loan. (Interest Rates of course vary from bank to bank). So let’s take the extreme end of my estimated value – 10%. This means that you will have to pay the bank back €5,500 back before the loan is deemed to be paid off. That is how banks make money. That €500 could go a long way towards other things in life, but you end up paying the bank. Some interest rates are a lot higher than 10%. That’s a lot more money out of your pocket and into the banks pocket. Madness.
- Generally, loans can last anything from months to years. Its this big grey cloud that is over your finances for years to come. I panic just thinking about the prospect of owning money for years to come.
I understand that not everyone will share this view, but this is just my personal outlook on the world of loans and borrowing money. I hate it. This looming “debt” over my head is the last thing I want.
However, there are two different type of loans: Good Loan and Bad Loan. Let’s break down each one.
The definition of a “Good Loan” is any loan that would contribute to your overall personal wealth in time. This could be a loan for your education that would result in you obtaining a qualification that would lead you getting a good job and a good wage. Another example is a loan for a house (mortgage). Once you pay off the loan you will own this piece of property or patch of land that would add to your personal wealth considerably as a valuable asset.
What I am trying to say is that its okay to apply for a loan if you are investing in your future and if it will improve your overall personal wealth. It is also okay to apply for a loan if you are in a dire need of something and simply have no money to pay. This could be money for kids health/education, emergency, house etc. “Good loans” if for something that you “need” or something that would add to your personal “wealth”.
Bad loan can be defined as any loan that is taken out for luxury items. One example is taking a loan out for a holiday. A holiday its something that we do not need and can do without if we don’t have the money. Getting a loan out for that “must-have” new luxury car when your current car is just fine. It is something that you do not need but “want”. However, if you don’t have a car and need a car to get to work for example, then it will be wise to apply for a loan in order to earn money. “Bad Loan” is taken out for anything that you don’t need but just “want”. It will put you in unnecessary financial burden just because you like living the good life. That’s the wrong attitude to have (in my opinion).
So as you can see you have to weigh up your options when deciding to apply for a loan. For some people loans serve as a great option to turn to when a significant expense arises. However, for me I would avoid a loan like a plague. I much rather save money now and postpone luxury item such as a holiday or a fancy car now in order to be able to afford these things in the future. I do plan to spend some money now on things such as holiday or a small shopping spree as I do want to leave in the present time. It’s not all about saving for the future and living a boring life. It’s just that I plan my holidays and luxury items carefully and not over indulge in these things now and be in trouble financially later in life. It’s all about balance. However, everyone has a different attitude towards loans and future. I will eventually will have to take out a loan of course, but until then I will try my best to avoid it.
Let me know in the comments about what your thoughts are towards loans and I would love to hear any stories (good or bad) regarding your personal experience with applying for a loan. Thanks again for all the support for this blog and please feel free to share your feedback in the comments section.If there is anything that is not explained well or if there is any confusion please feel free to seek clarification in the comments section below. As always you can like and follow me through WordPress, Twitter (@McevoyVadim) or email. Please spread the word if you are enjoying the content so this blog can grow.
Thanks for reading and talk to you guys in the next one.