Difference Between a Good Loan and a Bad Loan?

By | 24/09/2016

Life is all about needs and wants. Many a time a need and a want are separated by a fine line. How does one distinguish a need from a want? It surely comes down to affordability. If one can afford his needs as well as his wants this topic is irrelevant. But what if one is an ordinary mortal battling rising prices and looking for a better deal in life? How would one balance day to day needs versus his dreams and aspirations? Now one needs to clearly demarcate needs and wants. There is a famous saying If you buy things you don’t need, soon you will have to sell things you need.In order to make a decision to avail a loan or not one needs to know what is debt. This is basically borrowing money say from a bank to meet one’s wants or needs taking a bet that his future earnings would be able to help him pay back the borrowed amounts with interest. One can meet his present need say the purchase of a car even though one does not have the funds to pay for it immediately. But taking a loan entails risk .What if one loses his job due to a recession? What if one meets with an accident and is not able to repay the debt? This risk or uncertainty makes taking a loan a dicey affair. Remember “It is the debtor that is ruined by hard times”.

What is good loan?

One must have heard the famous debate on good debt versus bad debt. So what is this all about? Can debt ever be good or are modern youth right in fearing debt? Taking a loan is never a good idea but can be justified in certain circumstances. Taking a home loan is generally regarded as a good debt. The reasons generally given are a roof over ones head is a must and the purchase of a house is considered a basic necessity in life. With the cost of land and residential apartments soaring in metro’s and even towns and cities one might not be able to afford a house if he waits too long. By opting for a home loan when one is young even though he may not have funds in hand to make the whole payment and can only afford the down payment he might be able to purchase the house for a lesser price. If one opts for a home loan he also gets a tax deduction under Section 80 C on the principal component of his home loan up to a sum of INR 1 Lakh. Interest portions are tax deductible under Section 24 up to INR 1.5 Lakhs.

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