The Indian psyche of saving first and spending later has been an advantageous strategy in yesteryears. But today’s consumerism has made borrowing a given, right from the very first earning. Individuals are today prepared to pick up the cost of funds rather deprive themselves of desired amenities. The ease at which the credit is available today makes borrowing even more enticing. There is no disconnect that the availability of funds will only aid economic uplift, however, as the saying goes “each coin has two sides” the loans can be both either a boon or a bane.
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Loans are a boon when
There is a stress for capital. Think of a situation where the funds are required for an exigency. What can one do? Loans turn out to be the easiest option to fall back upon. From a medical emergency to child’s education and from money required for a marriage to funds needed for investing into a house, loans come in handy. If the funds are not available, the situation can become quite stressful. In the situation where funds are required for a personal emergency, the unavailability of funds can have a devastating effect.
Funds needed for a business opportunity. There can be a time when there is an opportunity to accelerate the business earning through a single transaction or to take the business to the next level through that deal. The requirement of funds in such instances can lead one to look towards borrowing. Loans can be a boon and can facilitate securing the opportunity.
Saving money. While loans come at a cost, but they can definitely help in savings as well. Sounds strange though, let us understand this through an example. One is looking to buy a house. The property is finalized through due deliberation and negotiations. Happy and contended with the deal, one applies for the loan only to face rejection on the request. Not only the deal is annulled but also by the time the funds are arranged, the prices may get escalated and that property that suited both the needs and the budget has got sold.
Aid in fulfilment of desires. Let us understand this from an example. Mr A has a family of 6 and travelling together becomes a hassle. Since he does not have a car, they have to rely on the cab services. The cabs generally do not accommodate more than 4 passengers. Even if 5 get adjusted, one member still has to take another cab. He wishes to buy a car that can accommodate complete family so that they can travel together. The car loan aided his desire. In the absence of a loan, it would have taken him a few years to save an amount to be able to buy that car.
As we see, the loans have their own advantages and give opportunities to build wealth and live a better life. But one must remember the famous saying “Do not bite more than you can chew”. One needs to be judicious in exposing himself to credit. The loan amount should be restricted to the amount for which the EMIs can be paid back without much hassle. The loans can also be the cause of pushing one into financial issues and debt trap if not managed properly.
In the end, would like to state that the loans are a boon in all respect but prudence is the key.
Arun Ramamurthy is the founder and director of Credit Sudhaar, a credit advisory services company and owner of Suvarna Mohur, a website describing rare Indian coins and their place in history.
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