3 Reasons Why 2023 is Not a Good Time to Take a Loan
You may have been dreaming of buying your first home or car for in 2023. Maybe you’ve already saved enough money to make a good down payment. However, looking at the present global economic scenario, it’s best not to take out a loan. And here’s why…
Due to a mixture of the changes generated by the pandemic to our consumption habits, the increase in the demand for raw materials, the global container transport problems, and the war in Ukraine, we live one of the highest inflation in history. Only, in this case, inflation affects everyone.
You may not know that global annual inflation in 2022 is above 8%, whereas in 2020 it was only 4.7%. And you must’ve already realized the way your wallet is affected, when you’re shopping and stocking the day to day stuff. Things have become costly.
Since we don’t know how long inflation will last and how much the prices of the most basic products will rise, it is better to take care of your cash flow and not reduce it by opting for new financial commitments.
(2) Interest Rate
The Reference Rate is nothing more than the cost of money. It is what it costs for the money minted by regulatory banks to reach the public through commercial banks. The problem is that this rate is also rising, and there is no sign of when it will stop.
And how does the interest rate affect you?
Well, the interest rate that the bank or finance company would charge you for any credit is directly related to this rate and, therefore, it is also going up. In practice, this means that if you take out a new loan at this time, the interest to be paid will be higher. In other words, the financing will be more expensive.
But the most serious thing is that this not only affects mortgage or car loans, but also credit cards, personal loans, and business loan…
Money is becoming more expensive for companies and, therefore, they tend to slow down investment projects, expansions, or the opening of new branches. This in turn slows down the hiring, supply chains and the economy in general.
If this scenario of high inflation, high interest rates, and low – if not no – growth continues, we are likely to reach a general economic stagnation, which is called a recession. Companies are still trying to recover from the COVID-generated crisis, and a recession could aggravate their situation. It could even lead them to make significant cost cuts, including job cuts i.e. layoff.
While this is not alarming, but there is a saying that can be very useful for your decision-making in the current context: Hope for the best, but prepare for the worst.
Check out: Is your money safe in bank during recession?
Opportunity behind not taking out a loan?
As the saying goes, behind every problem there is an opportunity…
Since now is not the time to get into debt, put away your credit cards and focus on paying off your debts.
The other side of the coin of a high rate is that the interest you get on your savings also goes up.
Therefore, if you already have the money for the down payment on your car or house, it is better to keep it saved.
Don’t rush, keep your money safe and working for you.
Hi, I am Nikesh Mehta, owner and writer of this site. I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected].