Loan is quite common and family member of many. The culture we live in has made avoiding loan difficult and rewarding to those who take. We often fail to realize its bad side. It is in fact sometimes mandatory to take loans for certain situations. Now let me know quickly run you through few negatives of taking loan.
- Loss of FREEDOM
Loan is not only a burden on your shoulder but also an important factor that forces you to make certain decisions in life. You might want to start your dream business, or visit your dream place for vacation. But hey, you need to first pay off the home loan or else you’ll be kicked out of your house. Isn’t that a kind of slavery?
There is article in Wikipedia that mentions about Debt as Modern Day Slavery.
Let me mention the legal definition of slavery:
“A slave is a person owned by someone and slavery is the state of being under the control of someone where a person is forced to work for another.”
Wikipedia
You are working in a company you hate under the boss you hate the most but you still get up every day in the morning and work because you’re being forced. I know it’s a strong statement but that’s the harsh reality. Many people will be okay in losing this freedom but I’m sure you don’t want to lose your freedom and those important years of your life where you cannot take decisions on your own and do something you really believe in.
2. Borrows from your future income
You take out loan from a bank? Nope, you take from your future-self. The banks never give loan to someone who doesn’t have the capacity to pay it back. So if you fail to pay, you either lose the mortgage (like the house, car or gold). You actually pay from your future savings. We feel excited and joyful when we buy something. Do you want to spend your money paying for something you’ve already purchased and been through the joy of buying it already?
3. It destroys your plan for retiring early
Imagine taking a home loan for 25 years at the age of 30. Can you retire anytime before 55? Well, if you take a loan for such a long period, chances are you’re not going to save a lot as you’ll rather pay higher interest to cover your debt.
4. Can cause stress, anxiety and serious disorders
When you have debt, it’s hard not to worry about how you’re going to make your payments or how you’ll keep from taking on more debt to make ends meet. The stress from debt can lead to mild to severe health problems including stomach ulcers, migraines, depression, and even heart attacks.
Last and the important reason:
5. Banks are fooling you, this is how…
Here is an image of calculation that I made on an excel spreadsheet of buying a home loan for 30 years. Assuming the interest rate at 9% and the loan amount of Rs. 40 lakh. You can see the loan payment (monthly EMI) that you make each month will be Rs. 32,185 but the interest portion for month-1 is Rs. 30,000 . So the bank is straight away profiting Rs.30,000 which is 93.3% of your actual payment for that month and only 6.7% is getting paid towards the equity side (towards your home balance).
Hence your loan balance out of Rs. 40,00,000 will only be reduced to Rs. 39,97,815 (Rs.40,00,000 – Rs.2185) and you pay the interest on this huge amount of Rs. 39,97,815 again next month.
You feel the burden now?
Final words:
Taking loan/credit may sound like a good option at first but the only thing you need to identify is that do you really NEED that or you just want it.