Friday, January 18, 2013, AM | 3 Comments
Personal loans have been getting a bad rap in the media lately. Many financial analysts suggest the reason is the high interest rates borrowers have to repay. But too often the real reason is irresponsible borrowing.
It is the borrowing of money to purchase unusual and irresponsible products or services that often causes the financial issues; causing the borrower to be unable or unwilling to pay the loan back.
This irresponsibility is usually heightened by the knowledge that obtaining a personal loan is easy and has very few requirements – additionally the lender doesn’t require borrowers to state the reason for the loan which makes it even easier.
The following are just a few of the unusual and irresponsible ways people use personal loans.
A Weekend Party Binge
More than a few borrowers go for the short term personal loan just so they can spend the weekend partying. A loan of a few hundred dollars can buy a lot of booze, some fun, and may be a great way to show friends how much fun you are.
But when the party is over, all you are left with is a headache and the loan bill. This can make the loan repayment anything but fun. If instead, you had used the loan funds to maintain, fix or even purchase backyard furnishings, then you would have something to show for the loan, and paying it back would certainly seem more worthwhile.
The Weird Pet
John was a straight laced person, rather shy, ordinary who didn’t like to party or do anything out of the norm. But he got tired of everyone poking fun at him for it. So he decided that acquiring a strange pet would do the trick.
One day when walking by the pet shop he saw a python in the window. Of course, he didn’t have all of the $12,000 to purchase it, so he got a loan to cover the remaining amount he needed. He took his python home and found out that he just couldn’t stomach watching the snake eat mice.
He just had to get rid of it, and ended up giving it away to a friend. What happened to the loan he has to pay back? Well, of course, he has no interest in repaying it, after all, the loan reminds him of his poor purchase.
So he ends up getting into default and having serious financial issues. If instead, he had used the loan amount and his savings to do something productive or even fun, something like a cruise for two, the he might have felt better about repaying the debt.
The Loan to the Girlfriend
Steve met a wonderful girl. They had been dating for two weeks when she asked to borrow $1,000 to buy this cool dress for a spectacular party. Steve didn’t have the money, but he knew he could get a personal loan.
He borrowed the money to loan to this great girl. Needless, to say she took the money and ran. She never talked to Steve again. Now, Steve had to repay a personal loan on money he didn’t use for anything.
If instead, he had used the money to fix his car, pay for school books or school necessities, then he would have been more willing to pay the loan back. But as it is, the loan is only a reminder of an unpleasant situation.
While small personal loans are a great way to pay for emergencies, cover unexpected expenses or use for needed products or services.
Borrowing money just to cover any wild need is probably not a good idea, and can be the fastest way to get into financial difficulties.
Written by Peter Coppola, an independent researcher and financial expert. He enjoys sharing his tips and insights on various personal finance blogs. Find out more information about Easy Finance Loans and other financial products.