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The Advantages and Disadvantages of Loans

Updated on April 6, 2009

Loan is a form of debt, often with interest. There are several reasons why people apply for loans. Usually they borrow money to purchase a house, buy a car, or start a business. Often, applying for a loan is necessary because most do not have available financial resources they need to make a purchase. Other forms of loans, like the student loans have helped a lot of students get through school. Those who use student loan debt consolidation clearly have multiple student loans. They do this to manage their obligations better.

Since loan is borrowed, the lender expects to receive payment with the interest specified. In addition, borrowers should make the payments at the specified due date for a certain period. This is where most people have problems. Most problems start when people cannot make the monthly payments required due to different circumstance. Some finds it difficult to pay their loan because of the many other debts they have. Some encounter additional problems such as medical emergencies and job loss.

Since getting a loan is a commitment, you have to be very careful with your decisions. Choose the right lender. There is more to picking a lender than just looking for one with the least interest. Keep in mind that those with low interest require longer period. Remember, when choosing a lender, check its stability, its flexibility, repayment schemes, and interest rates.

Before you decide to get a loan, it is only right that you review its advantages and disadvantages.


Below are the advantages of getting a loan. These are also the reasons why many apply for it:

1. There is a loan for just about anything. If you are in need of money to purchase a house, you can apply for a housing loan. If you need a car, you can apply for a car loan. With all the loans available, you will be able to purchase everything you need.

2. It helps a person afford an expensive purchase. All of us wish to acquire a property. However, we do not have the amount of money to make the purchase. Loans allow us to do this. They lend us the money so that we can finally afford our desired property.

3. Payment is staggered, which makes it affordable. This enables the person to pay off the loan gradually. If a person has chosen a good deal, he should be able to finish paying off the loan in the time specified.

4. One gets the funding he needs. If a person wants to start a business, he can do so by applying for a business loan. He does not have to wait for his savings to build up before he can start his own business. They can also use the amount they loan for investment purposes.

Getting a loan is very helpful to start building your dream. However, you have to be very careful with your decisions. This is because of the problems you will possibly encounter if you mismanage your loans and other debts. If you have multiple loans, make sure to manage it well. Use a debt consolidation loan calculator and check if it is better to consolidate all your loans. Make sure that you manage your loans from the start. Keep in mind that loans have disadvantages too.


Here are some of the disadvantages of having loans:

1.      It is a long-term debt. This means that you have to deal with it for a specified period, which means that you have to commit yourself to making monthly payments specified in your agreement for the period indicated to repay the loans.


2.      If you miss payments, you will face serious consequences. You can face foreclosure or repossession of the property. In addition, you could also face penalties and legal issues. It will also reflect in your credit rating, which can lead to a low credit scores.


3.      You may not be able to make early loan repayment. Few lenders give option for early repayment. Although there are some who will allow you to do this, they will charge you with early repayment fees.

Loans are very helpful. However, you have to manage them well because you can get into a lot of trouble if you fail to make the expected payments.


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    • profile image

      3 months ago

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      Xander Haddox 

      14 months ago

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      Dipak pandey 

      20 months ago

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    • profile image

      Tisha c. barman 

      21 months ago

      very nice essay and very very helpful as well. enjoyed reading it a lot. it provided me with loads and loads of information. although i am just a kid and needed this for my school assignment, i think this essay has provided me with enough and rather i could say more than enough information about the loan system, its actual meaning, its advantages as well as its disadvantages. not only this it also gave me a hint and tip on how to prevent falling into those deadly problems and and if at any point of time in that particular situation, how to help resolve it and how to make it turn in to a bit successful or a bit relieving thing as well. so, over and above, not writing much now and making it straight, it was a really really helpful and informative essay and has probably taught me a lot for the future too. thank you so so so much....keep it up author and let the good stuff coming always. may god bless you as well as your team. hoping for your best, yours sincerely, a high school student :)

    • profile image

      4 years ago


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      5 years ago



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      5 years ago

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      6 years ago

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      destructo of doom 

      6 years ago


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      7 years ago

      it,s a very usefull essay.....

    • profile image

      Ankit Baghadia 

      7 years ago

      It is very useful to me and it makes the concept of loan system very clear.


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      8 years ago

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