Taking a loan can do two things – save you or sink you! So, before you start signing, do some research and understand the process.

First, what is a loan? A loan is simply borrowing money and returning it back with interest after some time. You can avail of secured loans (with collateral) or unsecured loans (without collateral) and can borrow from a bank or a financial institution. An unsecured loan can also be categorized under guarantor loans. A guarantor is someone who will pay the monthly fee if the borrower cannot do so himself.

What kind of loans can you avail? Here are some of them.

Unsecured loans like personal loan and cash advances are easy to get. You can use these loans for almost anything – holiday breaks, purchase appliances, pay some bills, etc. Unfortunately, interest is a bit steep and the money is limited.

transportation and ownership concept - customer and salesman with car key outside

Another type of unsecured loan is the student loan. You don’t need to pay it back at once. The pay would come after you get your diploma.

The mortgage loan is a long-term loan that you can avail to get your dream house or property. These secured loans have terms of 10 to 30 years payback. Unfortunately, if you are not able to pay the principal, the bank or lender can take the property or house back.

Alternatively, bridging loans can be a valuable option when looking to purchase real estate, offering a short-term financing solution to bridge the gap between the purchase of a new property and the sale of an existing one. This type of financing is particularly useful in situations where timing is critical, providing the necessary funds to secure a new property while awaiting the sale of the current one.

However, it’s essential for borrowers to be aware of the fees associated with bridge finance. These fees can include arrangement fees, exit fees, and interest charges, among others. Understanding these fees and their implications is crucial for making informed financial decisions and ensuring that the overall cost of the bridging loan aligns with the borrower’s financial strategy.

And finally, the small business loan category. You may have to show your business plan to convince the bank or lender to give the money. Business loans are secured loans and would need collateral.

Before you start imagining how much to borrow and what to buy, answer this question – can I pay back the money or principal plus interest?

Hesitating? Read this short guide.

DO take a loan:

  • If it is a huge investment like properties or vehicles. You can enjoy them while paying for it in the next few years. Also, interests in home loans are tax-deductible.
  • If you have the means to pay them back. Remember, loans are BORROWED money not free money. You have to return them (with interest) or face the consequence. Make sure you have a stable source of income to pay back the loan.
  • If you have a good credit score. Obviously, it is easier to get a loan if there is no problem with your credit history. Making sure you pay on time will eventually lead to bigger loan amounts.


DO NOT take a loan:

  • If you can’t pay back the monthly fees. Don’t just think about the money and how to spend it; think also about the day you start paying. Certain borrowers, if they are not able to pay their loan back, tend to panic and choose to disappear from the lenders’ radar. Not realizing that their lender can track them with the help of Bond Rees or similar private investigation firms, they end up with a horrible credit score and sometimes, even face legal action. So, remember, choose to take a loan only if you can see yourself paying back on a monthly basis. If you signed for a mortgage loan, remember they can take the property and you lose everything.
  • If the monthly fee and Annual Percentage Rate is too high. Some banks or lenders may offer loan benefits that are irresistible, but the bottom line is – can you afford the monthly payment and APR? If not, then say NO! Never sign a contract if you don’t understand what’s written.

That’s it, some dos and don’ts about taking a loan. Keep in mind, loans can help you IF you are careful. You may need to tighten the belt for a few years, but if that means a new home or a new business for your family then it’s all worth it.