UNDERSTAND WHEN TAKING OUT A LOAN IS WORTH IT

The answer is: it depends. The loan may or may not be worth it, depending on the type of credit, the purpose of the person or company, and the current financial situation.

For starters, there are high-interest rate loans, which are more affordable, and lower interest rate loans, which typically require more collateral from the borrower.

Finally, the financial situation must be analyzed in detail before making a decision, since every loan is a debt that, if not well planned, can compromise the health of the pocket.

With all these factors in mind, the consumer can analyze the credit offers that are available for their profile and decide if it is worth going ahead with the contract.

Next, we will understand better when it is beneficial to opt for a loan and when it can be a trap in your financial life.

When is it worth taking out a loan?

After all, when is it worth taking out a loan and facing the installments? See some examples of situations below.

When is it advantageous to get out of debt?

You may have heard the expression “exchange an expensive debt for a cheaper one ”.

This is possible when you have accumulated debts that, together, add up to exorbitant interest rates.

That way, you avoid the “snowball effect” of interest that accumulates over time and makes the debt unpayable.

For this, it is essential to plan well so as not to delay any installment of the loan, as default can take you back to the debt hole healed initially.

When there is an opportunity to buy or invest

In life, it is very common to have opportunities to acquire a good or make an investment and not have the necessary amount to make the payment in cash.

This happens when you want to buy a more comfortable and economical vehicle or a property of your own, as well as when you want to invest in a course or open your own business.

In the example of the course, it is the knowledge that can be turned into career advancement and future remuneration. The company, on the other hand, has the potential to become a source of income in a matter of months, if effective management is carried out.

Therefore, these are situations that justify a loan, as they bring opportunities for future earnings and improved quality of life.

When there is a good offer of credit

Depending on the state of the economy, having an offer of credit with attractive interest rates can be an interesting privilege.

In the market, the loans known to be more advantageous are the payroll-deductible type, in which the installment is deducted directly from the payroll, and the secured type, which allows you to offer vehicles and properties as collateral.

Naturally, it is important that the reasons justify taking out credit and that the installments fit within the budget.

When borrowing is not worth it

We cannot forget about situations in which the loan is not worth it and can pose a danger to financial health. See some examples.

When the installment exceeds the budget limit

This is considered a safe limit to not compromise your budget in the future, generating indebtedness.

Therefore, if the installment consumes a greater percentage of the monthly income, it is a sign that this loan does not fit in your pocket.

When the reason is a superfluous purchase

It is difficult to say what is essential in other people’s financial lives, as each individual has their priorities.

In general, however, it is safe to say that taking out a loan to shop for clothes, electronics, or travel, for example, is not a good idea.

That’s because they are non-essential products and services that can easily cost twice the selling price when purchased from a loan.

Therefore, in these cases, it is better to save money to buy in cash than to pay high interest for an acquisition that can wait.

When interest is too high

Taking out a high-interest loan means that you may have to pay two or even three times the amount borrowed by the end of the installments.

This happens due to the effect of compound interest, which adds interest on interest each month and multiplies the debt.

Therefore, it is essential to analyze credit offers and know how to identify abusive interest in the market.

Which type of loan is most worth it?

See a summary of loan types to find out which one is most worth it for you:

• Unsecured personal loan: it is the simplest and the borrower can use the money for any purpose (just go through a credit analysis). However, interest rates are usually the highest;
• Secured Personal Loan: Offers lower interest rates by using real estate, vehicles, and other assets as collateral;
• Payroll loan: it is automatically deducted from the INSS salary or benefit and, for this reason, has lower interest rates;
• Overdraft: is a limit available in the bank account that can be used in emergencies, but has one of the highest interest rates on the market;
• Revolving credit: the loan taken out when you do not pay the entire credit card bill or pay the minimum amount. It usually breaks records of high-interest rates.

Therefore, it is clear that secured and payroll-deductible loans are worth more for the lowest interest rates, but they are not always affordable.