For many people, the idea of borrowing money may only seem like a bad one. After all, taking on any extra credit almost always comes at the cost of added interest, along with other understandable concerns, such as the need to make regular repayments to your lender. However, there are also many benefits of borrowing money providing that you do so in an educated and responsible manner.
Well thought through, planned borrowing can enrich your financial life and improve your financial status, not just by simply providing you with some extra cash to spend but also in the long-term, for example, by helping to build your credit rating.
We’ve listed some of the main benefits of borrowing money from the bank or another financial institution.
#1. Finance Large Purchases
One of the most obvious benefits of borrowing money in the form of quick loans, bank loans, or even a credit card is that it can be used to help you finance larger purchases that you may not be able to afford from your regular pay packet. Although there is always the alternative option of saving up over time until you are able to afford what you need, the option to borrow money can certainly come in handy if this is somehow not possible.
For example, if your car breaks down and you need money to repair or replace it so that you can get to work each day. Other things that borrowing money can help you to finance are buying your own home or even getting a university education, both things that are great investments that can help you to earn a larger income in the future.
#2. Improve Your Credit Rating
Anyone who’s never borrowed money before will know that this can be in many ways just as damaging to their credit rating as borrowing too much. Although it’s much easier to repair a credit rating by simply taking out a line of credit and ensuring that all repayments are made on time, having no credit history can make it difficult for you to get a huge range of financial products – not just credit cards or quick loans.
For example, if you’re hoping to buy a car on a hire purchase agreement or get the latest smartphone on a contract plan, your credit rating will be taken into consideration. If you’re hoping to purchase your own home in the future, then a good credit rating is absolutely essential for getting a mortgage. So, responsible borrowing now can certainly pay off in the future.
#3. Free Up Cash
Although saving up money and then using it for spending might be the favourite option for many financially-savvy people, there may be times when you’re going to want some spare cash. If you have some savings, it’s totally understandable for you not to want to spend them all at once on one purchase since this will leave you without your financial safety net for emergency expenses until you are able to build your savings back up again. In this case, borrowing money to make a purchase can be an ideal alternative since you’ll be able to hang onto your savings and feel more financially secure.
#4. Improve Your Money Management Skills
If you are a young person who is considering borrowing money for the first time then taking out credit in the form of small, quick loans or a credit card with a manageable limit can help you to significantly improve your money management skills.
Since borrowing money comes with a commitment to make a monthly repayment, it’s important that borrowers are good at budgeting so that they’re able to keep up with repayments whilst also making sure that their priority bills are paid. Developing good money management skills can help you to spend less and save more for a more comfortable financial future.
#5. Perks and Benefits
Last, but not least, borrowing money can give you access to a range of perks and benefits that may not have otherwise been available to you. For example, many credit cards come with special benefits, such as the option to collect air-miles to help fund your future travels or special money-off deals in certain stores that are exclusive to borrowers only.
Store cards are also a great way of getting perks and benefits; if you shop at a specific store a lot and sign up to their own credit card then you may be able to save a lot of money on your future purchases there by taking advantage of exclusive deals, offers, or the option to collect more loyalty points, which can be exchanged for purchases.
These are just some of the benefits of borrowing money! Can you think of more? Have you benefitted from borrowing? We’d love to hear from you in the comments.