Young people do not consider credit a problem; it is an opportunity to get the desired thing right now. The choice to apply for a loan is often impulsive, and only some people think about the consequences when applying for a loan.
You Cannot Take Loans for “Eat,” “Walk,” or “New Smartphone”
Tell your children not to take out loans for food, go to the sea, or buy the latest iPhone. Many people say, “I can afford to buy the most sophisticated TV or smartphone” – no, you can’t if you don’t have the total amount for the purchase right now. It is a general mistake to think that if you have a job or a salary, you can take out a loan for 1-2 years and then gradually pay it off.
Of course, giving away $20,000 immediately is a pity, so taking out a loan and paying $500-$1,000 monthly seems more profitable. At the same time, no one considers the overpayment for the entire period, and the longer it is, the more you will give to the bank.
Long-Term Loans are 3-4 Times Overpayment
Long-term loans are even more dangerous. If you take a mortgage for 10-15 years, then for the entire period, you will pay the bank for 2-3 apartments. Please note that for all these years, the borrower has been imprisoned; he must make a mandatory payment every month. At the same time, the apartment belongs to the bank, and, in case of delay, you can lose both real estate and money.
When buying a car on credit, prepare for new expenses – fuel, repairs, parking, insurance, and monthly loan payments. As the vehicle leaves the showroom, it immediately drops in price by several thousand, so you cannot sell it at the initial cost.
The Financial Situation May Deteriorate
When applying for a short-term or long-term loan, you must ensure that you keep your job and that unforeseen situations will not arise. For example, in 2008, banks in Ukraine issued mortgage loans, but there was a global crisis, the dollar rose, and borrowers could no longer pay off debts. Rates increased even more during the crisis of 2014, and those who bought apartments in 2007 found themselves in a difficult situation.
Banks will never work at a loss; therefore, their contracts stipulate that in the event of force majeure, they can unilaterally change the lending terms or require the client to repay the loan ahead of schedule.
You Must Repay any Loan
Explain to the children that no matter how profitable the loan may seem, it must still be paid back after a while. Some companies issue the first loan at 0%, and borrowers think: “Oh, class, I will take $3,000 at 0% – no overpayment anyway,” a month later, they realize that they need to look for $3,000 somewhere to pay off the debt.
If you do not repay the loan on time, the bank will charge a penalty and a fine. After that, it will knock out debts through collectors or the court. If the court decides to recover, you will deduct the amount with the accrued interest from the borrower’s salary. They can also seize property, and you cannot sell it.
Delays negatively affect the borrower’s credit history; he will not qualify for a loan from any company.
Instead of loans, it is better to save money for a purchase.
Is it possible to pay the bank every month? If you want a new phone or TV, you need to save up for them. So that there is no temptation to spend money, set aside part of your salary for a deposit without the ability to draw early; many people say they can’t procrastinate.
Want to renovate your apartment? Take your time with a loan; buy building materials gradually – wallpaper this month, paint next month.
Loans are Addictive
Some people have everything on credit – a car, an apartment, furniture, and appliances. These are not poor; they have a good salary but do not properly manage money. As soon as they repay one loan, they immediately come up with something else to buy. It is a habit to pay the bank every month.
The worst is when children take out a loan and parents repay it. Parents need to stop paying off their children’s debts. Otherwise, a vicious circle will occur: children will irresponsibly take out a new loan, and parents will pay.
What are the Reasons You Can Take Out a Loan?
You can take out a loan only if the money brings income over the interest on the loan. For example, for business development, you will immediately sell several times more expensive to purchase goods or things. You can buy a car on credit if you need it for work, and not go to the sea once.
When You Need Money, Return it on Time
Tell the children that credit is not a magic bullet but a responsibility. Before deciding, you need to study the contract, calculate the overpayment amount, and think about a fallback in case.
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