In a normal economy, the supply and demand for money can never be at equilibrium. The demand must always be more than the supply for the economy to remain at a steady growth rate. This means that one will not have enough money to spend as per his wish. This principle is called the marginal diminishing principle of capitalism. However, people are always spending and investing way far beyond their salaries levels. This is only achieved if one takes up a loan. A loan helps one meet obligations and make investments that would be impossible to make if one depended on this salary. What are some of the reason that one should take up a loan?
For current expenditure
One takes up a loan to meet current expenditures. This is spending that one makes on a daily basis. Take an instance where one is in short of shopping for the house. Where one depends on the fixed salary at the end of the mouth, meeting such expenditure is almost impossible. In such a situation, a loan is the best option. One should take a short loan to meet the expenditure and repay it shortly after the salary reflects. Ask your bank whether it can offer you an overdraft. This is the withdrawal of money more than what you have in the account. Overdrafts should be repaid after a short period, normally one week. A loan to meet current expenditure should have low interest and should be borrowed from a bank. One’s salaries should be used as the guarantee.
To make capital investments
One can take a loan to make a massive capital investment. Capital investment is an investment that involves the purchase of fixed assets. These are assets that are not easily converted to money easily. They are used in the generation of income or raw materials. These assets are not very expensive to buy. This is because most of them have to be imported from a foreign country. The total cost is soo high that one person or a company income cannot finance the purchase. For an individual or a company to invest in a capital asset, a loan is the most appropriate step to take. Apart from, availing the cash, buy capital assets by loan have a lot of advantages to the owner. It is a way to legally reduce the amount of tax liability that one should buy. Interest to pay up the loan is classified as a non-taxable expense.
Invest in securities
One can take up a loan to invest in the money market. There are two types of money markets. The capital market and the securities market. the capital market provides a source of capital over a long period. A securities market is one that provides a source of liquidity for a short period normally one night. Another risk-free security investment is the government bonds. One can take a loan to invest in this assets. The government bond is the secure investment as it attracts no risk. It, however, pay interest at a lower rate.