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Smart things to know: The impact of taking loans or liabilities

Liabilities taken to purchase an asset can be beneficial if the asset appreciates in value over time, as in the case of a home loan.

ET CONTRIBUTORS|
Feb 11, 2019, 06.30 AM IST
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A liability leads to a cash outflow from the future income for the repayment of the loan and the interest.
1. Liabilities or loans are taken to meet expenses or to create assets which cannot be funded by regular income.

2. Loans are generally repaid in monthly instalments so that the repayment can be done through regular income.

3. A liability leads to a cash outflow from the future income for the repayment of the loan and the interest, thereby leaving lesser amount for future expenses and savings.

4. Liabilities created to meet regular expected expenses through personal loans or credit card loans point to inefficient financial management and lead to debt traps.

5. Liabilities taken to purchase an asset can be beneficial if the asset appreciates in value over time, as in the case of a home loan.

(This content is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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