By Mashum Mollah
One of the most adult things that a kid can witness is the ability to conjure money out of nothing. Resourceful adults who might be struggling financially one minute will be able to breathe freely the next because they have solved their money problems.
But in actuality, it’s not conjuring up money from anything; it is the act of borrowing money from lenders under a set of terms and agreements. Loaning money from institutions can seem like a hard concept to grasp, particularly because there is a lot of paperwork involved.
There’s also a negative connotation to borrowing money because it can often begin a slippery slope into debt if a person is not careful.
However, loaning money is a wonderful solution when you’re strapped for cash. To break this untoward notion of borrowing money, here are some examples of where it can be used:
For Homes:
Not all homeowners are rich people who can finance their purchases with what they have in their banks. A person will rarely choose to pay the entire cost of their house in one lump sum because that is impractical unless they have a secret stash of money just lying around.
One of the most common ways of financing the buying of a house is by applying for mortgages at lending institutions such as banks and private lenders. These loans can cover part of the down payment and closing costs and divide the entire cost of the house through monthly repayments over a set period.
A loan can also cover renovation costs or repairs when a homeowner doesn’t have enough money in their bank. Getting a loan gives a person the ability to pay for what they need even if they don’t have their own money, as long as they can promise to keep up their end of the bargain.
For Business:
Not all entrepreneurs have the money to fund their business ventures from their own pockets. Their savings may cover a part of the capital, but they will need another source of funding if they don’t want to hit bankruptcy before their business gets a chance to get off the ground.
To do so, they might look into potential investors to provide them with enough funding to finance their operational costs, such as manpower, equipment, and other expenses. Another option that entrepreneurs have is to apply for small business loans to cover the costs of starting a business themselves.
A loan can also be a smart move for when a business owner wants to expand their business. Scaling will require additional resources and manpower, which means they need to spend more money to earn more money. This is a perfect situation to take out a loan because it can pay for itself once the business makes a profit.
For Personal Use:
Loans aren’t only for buying or renovating a home or funding a business. It can also be taken for personal purposes, such as consolidating debt, buying a car, or financing whatever purchase you can’t afford on your own. Although it’s important to note that unsecured personal loans may have higher interest rates because they won’t require collateral.
However, some lenders will be wary of borrowers whose purpose for the loan is to repay their debt. This is because their approval might begin a never-ending cycle of borrowing and incurring more debt than they can afford to pay back.
If you opt to get a secured personal loan with lower interest rates, you will have to offer collateral such as your house, car, or other assets that can back up your loan. This is a much better option if you are confident in your abilities to pay back the loan within the agreed-upon duration.
There are plenty of other purposes where you can use a loan aside from the ones mentioned above. Borrowing money for the first time can be overwhelming. There are no definite guidelines for how people can apply for which loans for their specific situations.
That’s why educating yourself about financial matters is vital so that you won’t be caught at a loss during situations where you need to get money fast. The process of borrowing money may not be taught in school, nor will it be taught in the “how to adult” seminar because there are is no such thing.
This responsibility will then fall on your shoulders alone. Your parents didn’t magically conjure up money from the air when you moved into a new home, nor did the knowledge of how to apply for a loan suddenly pop in their minds. They put in the work to research their options, just like what you are doing right now.
