Don't Borrow Trouble

A loan is good if it helps you create an appreciating asset.

- Amit Sethi

While you work hard towards financial goals, loans often come to your rescue and help cross important milestones, such as education, marriage, first car or buying a home. Rising competition among lenders and advancement in technology have made credit very accessible. However, taking loans without due diligence could make you default on repayment, land you in a debt trap and ruin your credit history. A poor credit history will ruin your chances of securing a loan in the future. Here’s how to make a wise borrowing decision:

GOOD VS BAD BORROWING

Be sure why you want to borrow. “Good borrowing is a way to accomplish your financial goals without putting a strain on your budget and the overall financial life cycle,” says Rishi Mehra, CEO, wishfin.com. “Bad borrowing could be a deal made at a higher interest rate. Even a loan taken to buy an expensive vehicle that isn’t your need would qualify as a bad borrowing.”

Buying for a sound cause will either help you create an asset or enhance your current/ future income. “Buying an appreciating asset, such as a home, can make a borrowing good, with income tax benefits,” adds Mehra. Buying property gives you an opportunity to earn in the form of rentals or as capital gain in the value of the property. An education loan can help you earn more in the future, so it is considered a good borrowing.