Borrowing: why at all?
It is easy for me to say ‘you should not take personal loans, because I have not taken’.
It is so foolish too say do not borrow. Most people are borrowing out of compulsion, not love for the bank!!
Nobody borrows if they can live without that expense. However people do borrow, and when I spoke to a few of the kids who had borrowed and a couple of bankers…here is what I got as the reasons for borrowing (and I am not including a boy who took a personal loan of Rs. 25000 for getting a tatoo done – I am happy, the tatoo shop owner is a friend!!).
1. For a major repair in their vehicle: Vehicle meets with an accident (worse, vehicle belongs to the boss!) so the P L goes towards repair costs.
2. For a medical emergency: actually could be any emergency, but 3 people said medical emergency. The medical emergency could happen to self, friend, parents, sibling,….does not matter.
3. To repay more pressing loans: if they have borrowed from some friend, relative or a money lender who can press them hard, then the bank P L becomes necessary to repay the original loan.
4. To meet expenses arising out of death: Some people spend a lot on death related ceremonies and have no clue from where to meet those expenses, so immediately it is a P L.
5. To buy a luxury item – could be a plasma tv, a vacation, a family trip to ‘native place’…literally anything.
6. For spending on a festival: Ganesh chathurthi for one! Or it could be to meet expenses related to marriage, child birth, …again anything! This need not be in their own house – it could be in a friends house too! Lots of trust!
I normally do not write about loans…but just read it a couple of times – do you see any NEED for a loan?
For things which you know, you do a SIP…for an emergency you insure. Tell me why do these people need to borrow?
JUST a little willingness to postpone consumption, a medical and life insurance, …..would actually mean,….no P L was necessary! Just a point of view….
param
“willingness to postpone consumption” – this was the foundation of ‘hindu rate of growth’… alas, we chose to sacrifice that to mimic the problems of the developed world.
subra
people borrow because it is easy to borrow – according to Prof Anil Agashe of Pumba…comment on FB…
Abhi
I agree with some of the things but not for medical emergencies – insurance may or may not solve this issue. I know a guy who has medical insurance (5Lakh) but was diagnosed with bone marrow cancer recently – the cost of treatment would be around 80 Lakhs!!
Just look at the premium for 1 crore medical insurance – it is prohibitively high.
Unfortunately, it also doesn’t come under company specified “critical illness” for life insurance which also is around 30 Lakhs considering he is only 24 and no dependents.
In my opinion, this is NEED to borrow. The parents, though not financially dependent on this guy, will sell their kidneys before watching their son die.
Parag
People borrow because failing to observe a disciplined saving habit. Even the most certain (capital) expense is NOT planned for…strange..shocking, rather. I have heard some give me the phrase ‘ignorance is bliss’. As if by ignoring they will be avoiding the expense it self.
Also, people need to do basic cash budgeting exercise by observing 6-8 months of income and expenditure patterns and cultivate a habit of saving for meeting certain and some unexpected expenses.
Failure to the above becomes a limitation which is converted into a business opportunity by Banks and other organizations. And people fall into these traps.
Else, do you think we need a loan to buy a SAMSUNG Phone??? or do we need the phone at all…..
Atiker
I don’t agree param
“willingness to postpone consumption”
Leads to savings, which the govt should have channelized for higher growth.
‘hindu rate of growth’
That is a Nehruvian rate of growth, not Hindu.
Sachin
Subra Sir
You may have health insurance that adequately covers the hospital charges, still you will require hard cash or ready money.
Two things about medical emergencies I learned last week – Personal experience.
1. The hospital / doctor does not have cashless facility. You have to pay the bills then collect it from the insurance company. Thankfully, the doctor’s assistant gave all the administrative help. You will ask why we did not opt for hospital with cashless facility? For answer – point no. 2.
2. I have noticed many times that best doctors do not offer cashless facility. The reasons may be many viz. a. If the doctor is very good he may not like the restrictive / discounted fees offered by the insurance companies. He / she will may like to charge more. If he / she is really good, he will get it also. b. The doctor may not like the hassles of dealing with TPAs (red tape does not exist only in government set-up). I know some doctors who have stopped giving cashless facility for this reason.
The problem here is this – When faced with a medical emergency will you make the decision based on the cashless option offered by the hospital or your choice of hospital / doctor? Both may or may not be the same.
Bottom line – Health insurance is very good, but you will have to have or need to arrange equivalent amount of money yourself.
Pravin
agree with aitker .postponing consumption is a great attitude to inculcate.the postponed money does not remain in stuffed mattresses.it is chanelled into banks,stocks or lent to others and ends up in the investment market when entrepreneurs trying to gain profit end up making us all more wealthier (profit and loss tells us if we succeeded or not).
the hindu rate of growth was caused because savings were destroyed -the rupee was constantly devalued thanks to deficit financing.capital formation was banned -thanks to high taxes and red tape.it was diverted to wherever the govt thought it was suitable -IITs and a few good PSUs are the positive side while the negative side is hundreds of loss making PSUs,horrible roads and primary education etc.since profit making didnt play a part in these economic decision,it was purely what the neta/babu decided was in our best interest -and guess what? it was usually in “their” best interest.so we all turned poor.
quite the opposite of delayed consumption.