Tips To Use loan To Build Assets

2019/02/25

Loan is something which everyone aspires for to fulfil his dreams and get help in finances, but the worst part is that it is counted an s liability because we have to pay it back to the lending company. But these days the market of loans is showing a drastic expansion both in the form of presence as well as size too. The reason is that there is high rate of growth and they need to attract the investors too for their benefits.

There are various kinds of loans which bans and financial institutions give away at a particular rate of interest. But we take them as a necessary evil as we have to pay back huge interest on the amount we take as loan from them. But these loans can be used a s real asset builders too , you just need to know few tips related to these personal or property loans and bingo the job is done. The financial planner of your income will always ask you to stay away from loans and EMI’s, but just listen to him and work out on how you can use the loan as a tool to create an asset for yourself. So let’s learn the trick and build our assets with the help of loans.

Learn The Demand And Supply For Loans

Usually there are two kinds of people who take loans from financial institutions first are Liquidity Seekers and second ones are Asset Builders. Liquidity seekers are the ones who are not left with any money to spend or there is no liquidity of their money as they have spent all the money to build assets and now they want money for other purposes. So they take loan as they need some money which they can spend on other things they need as their money is totally locked now.

Now let us talk about the second cult which is asset builders, who take loans to build their assets. They do not have much money to buy an asset, so they take loans from bank. Watching the trend in the growing market every year it is better not to sell your asset and reinvest in another asset rather the best way to do is that you take a loan against your current asset and then invest in another asset that you are planning to buy. This way the loan you will take now will help in building another asset for you. This way you will be using your loan perfectly in building another asset for yourself. When the market seems at a good high and you feel that you can reap best and maximum profit then sell of that asset and repay your loan and earn profit too.

Impact On Borrower Of Supply Of Loans

If there are many options available in the loan market then you can pick and choose the best one where you get less processing fees, less waiting time period and you get other attractive befits too along with the loan. This way the borrower can get the best loan with the expansion of the supply of loans in the market.

But generally the financial planners ask you to avoid taking loans beyond your capacity. The reason being when the value of your asset goes down then it will be a burden on your head. So even if you take loan take only within your repaying capacity so that even if the market crashes you do not become bankrupt or indebted due to this loan amount.

Two Key Principles To Be Followed While Using Loans

There are two very important principles which you should always keep in mind when using the loan. The first one says that the loan should be always invested in appreciating asset or should be repaid from the fixed and steady source of income. If you follow both simultaneously then nothing likes it.

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Say if the self help group of women uses the loan amount to invest in a future business which will generate revenue, which in turn will help in repaying the loan then it is fine. But if the same loan amount is used without pondering over where it is used it will lead to nothing but total bankruptcy for the borrower. Be smart while investing the money you have borrowed and invest in something which will help you in repaying the loan.

Same way peoples who take loan against gold, mutual funds or equity should invest the money taken on the assets locked value into something which will give you the return and power to repay the loan taken. But people usually spend it in buying something or repaying another loan this way the loan amount remains the same and they do not get any source to repay the loan taken. The second thing that you should keep in mind is the net worth of the asset.

If you buy a house from the loan amount, you think that the values of the house will appreciate and then you will repay the loan amount by selling it off and earn profit too. But generally we forget that the market fluctuates and what if the value of property depreciates thus the net worth of the house will get eroded. SO the asset should be bought considering the net worth and the volatile factor of the market. Thus even if the value of the house depreciated the outstanding loan amount should get covered and the net worth should be taken into consideration.

Be Risk Proof

You can save yourself from the risk by following a simple principle that when you fund any asset the amount of money you should have with yourself should be equal to the possible erosion value of the asset. Say you are planning to buy a share worth 100 from the loan then you ask or find out the drop in the value of share which is expected. If it is 80 approximately then the difference amount that is 20 should be the amount you should have in your pocket and 80 should be the loan amount that you should use for buying it. This will make you totally risk free even if the value drops to 80.

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