3 reasons not to borrow (2024)

FAQs

What are some wrong reasons for borrowing? ›

Loans are not very flexible - you could be paying interest on funds you're not using. You could have trouble making monthly repayments if your customers don't pay you promptly, causing cashflow problems. In some cases, loans are secured against the assets of the business or your personal possessions, eg your home.

DON'T EXPLAIN OR MAKE EXCUSES.

Doing so only opens the door to a discussion and prompts your friend or family member to try to overcome your objections. Say, “I'm sorry, but I can't give you a loan.” When the person asks, “Why not?” just repeat your statement. Eventually, your friend or family member will stop asking.

It can damage your credit rating if you don't pay your bills. If you fall behind on your bills, you may not be able to borrow more money when you need it or you may have to pay a higher rate.

There are many reasons you may need to borrow money, such as remodeling your kitchen, buying a new car, paying off credit card debt, helping the kids pay for university or making a major purchase. Depending on your borrowing need, here are some options to consider on your loan or line of credit.

The term “bad debt” can also be used to describe debts that are taken to pay for goods that don't appreciate. In other words, bad debt is a form of borrowing that doesn't help your bottom line.

The more you borrow, the more you will have to pay back every month. If you are unable to pay your bills and miss payments, your credit history will be impacted negatively, which may lead to higher interest for future loans and credit of all types.

Bad debt is generally considered money that you borrowed to purchase a depreciating asset. Debt that isn't healthy for your finances typically carries a high interest rate. Carrying too much debt can negatively affect your credit score.

1. Not being able to make your payment. The single biggest risk to taking out a personal loan is not being able to afford to keep your commitment to your lender. If your monthly loan payment is too high for you to make and you default on your loan, you could find yourself dealing with serious financial consequences.

Be clear about your 'no' e.g. “I'm sorry, my friend, but I can't lend you money.” You don't have to offer an excuse. Express your gratitude, e.g. “That you've asked for help with money does means a lot to me.”

What are 5 reasons a bank may not lend money? ›

Disadvantages of borrowing money

Firstly, in spite of increased affordability, due to interest, service fees and legal costs, borrowing money will ultimately cost you more than if you were to support your goals by yourself.

Each of us doesn't have an agreement for a time when they need to pay back the loan. When we agree to lend the money, we don't know when we will get our money back, and our friend doesn't know when they will have money to pay it back and this could lead to miscommunications.

The more you borrow, the more you will have to pay back every month. If you are unable to pay your bills and miss payments, your credit history will be impacted negatively, which may lead to higher interest for future loans and credit of all types.

Inability to pay during their time of crises

If the friend you borrowed from is ever in need of money, you could be faced with the situation of being unable to help them in return. It's quite possible for your friend or relative to have an unexpected financial crisis of their own soon after they lend you money.

Problems of borrowing

These interest obligations require either higher levels of taxes, with possibly adverse effects on the economy, or reduced expenditures for other purposes. The payment of interest may easily result in a transfer of purchasing power to higher income groups, contrary to accepted standards of equity.