This is a question faced by many people. It is always considered right, to avoid borrowing money. However nowadays especially for youth on the verge of starting their careers it becomes necessary to take a loan to have a good lifestyle or purchase their houses or vehicles. In these cases borrowing money does not seem that bad.
Recently the trend of taking loans for buying hoses is on the rise especially due to low inflation and low interest rates. It can be observed that the interest on the mortgage is around 5% per annum and the inflation rate is under 3% pa while annually the property value shoots up by 15% to 20%.And so, even if at times, there may arise a situation when a person falls short of money, it does not deter him from cutting down on his expenses.
People are ever prepared to take a loan from a bank or a lender and carry the burden of paying the interest than to deprive themselves of their desired amenities.
Another enticing factor is leverage. While the buyer has invested only a very small part in the property i.e. the deposit paid, the net worth is rising with respect to the total value of the property rather than the value of the small deposit.
However, personal debts have their fair share of risks too. The low interest rates are because the mortgage is arranged as a secured debt. Generally, while taking a loan from the bank, a person surrenders his real estate documents to the bank as collateral. On failing pay back the debt within the decided time period, the bank aims to recover the money by taking possession of the real estate and selling it in the open market. Thus the person may be left homeless.
An additional grave problem is people taking debts to purchase unnecessary luxuries like a posh car or some fancy electronic gadgets. This stretches the budget beyond the desired limits and affects the lifestyle as ultimately the debts have to be paid off and the longer they take the interest keeps on mounting.
Stretching the budget increases the stress and is essentially a trade off. People enjoy a lavish lifestyle but place their future in jeopardy. If they are not able to fulfill these payments in the future they may end up becoming bankrupt. Thus we should think carefully and get our priorities right before just purchasing any article we fancy.
