A few months after getting my first job I applied for a loan. The only reason I made the application was that the bank through which my salary was processed was willing to give a credit to anyone who worked for my employer.
It is when filling the loans forms that it hit me – I had not thought of the purpose of the loan. Nevertheless, I found a good excuse and the loan was approved.
I did not do anything meaningful with the money. It only resulted in an unnecessary cost.
The reason you give for a loan determines whether the lender approves it or not. So it is crucial that it is a reason that at least seems credible.
However, it is not so much about the best reason to give but the best business or personal loan purpose. You can always find a plausible excuse for a loan but do you need it?
A loan comes with an attached cost
When you apply for a loan, you are making a purchase. Often it is an expensive purchase. You should, therefore, ask yourself whether in the long term you are getting value for money.
So how do you know you are getting value for money?
It would help if you had projections that tell you the loan will generate enough to repay the principal, interest and fees. Most important, it should make a profit for you or your business. Otherwise, there wouldn’t be a reason to take the loan.
A loan is best for a business endeavor
With returns in mind, the best reason you can give for a loan is a business need such as a liquidity boost. A business is inclined to generate more value out of a loan. Also often the purpose of business loan is more apparent.
Of course, consumer loans such as car loans and mortgages can be considered to provide value for money. This is about the service one derives from them and what the alternative would take.
You could also take a loan for other forms of investments such as stocks, bonds or mutual funds. However, the rule of thumb is that the returns from the investment cover the cost of the loan.
There is an unmet need for loans
With that said, there is always a higher number of loan application than what is in the end approved. And most are declined because the applicants cannot meet the stringent requirements.
And there are also those who never apply because of the high interests and high fees.
Blockchain is making it possible to bridge the gap by reducing cost and connecting lenders and borrowers from different jurisdictions. It is also providing the tools and mechanism for authenticating profiles and creditworthiness.
AssetStream is a P2P lending platform that leverages the blockchain technology to help meet loan needs primarily in developing countries. It provides the capacity to prove genuine needs of credit through an effort of a community.
So what is the best reason to give for a loan?
The real purpose of the loan, which you’ve analyzed, with the help of a community of peers, and conclude that it is bound to make good returns.
This is how you can help others get purposeful credit
Be part of a revolution that makes credit not only accessible but also meaningful to both lenders and borrowers? Sign up on AssetStream.