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What is the impact of taking loans or liabilities?

​Purpose of taking these
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​Purpose of taking these

Liabilities or loans are taken to meet expenses or to create assets which cannot be funded by regular income.

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​Repayments
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​Repayments

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

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Effect of a liability
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Effect of a liability

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.

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​How they lead to debt traps
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​How they lead to debt traps

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

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​When a liability can be beneficial
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​When a liability can be beneficial

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).

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