Although legally you will not be allowed a loan until you are over the age of eighteen years, there are no other legal restrictions as to when you can borrow money. However, there are advantages and disadvantages to borrowing money at different stages of your life. If you can delay your borrowing, then it might be wise to do so in some cases or do it as soon as possible in other, depending on your age and your life situation.
Age is not really relevant here when it comes to people looking to apply for a loan, but more the stage of life that you are at, which can tend to follow a general pattern with regards to age, but not everyone fits the mould. Therefore it is better to look at the important factors to consider at different stages of your life.
– Salary/job security – if you are taking on a loan, particularly a substantial one, then you need to be confident that you will be able to repay it. You will need to not only be paid enough to cover the cost of those repayments but you will need to be confident that you will have this income available to you for the duration of the loan. As we get older and more experienced, we will often have a higher salary and so be able to take on higher value debt. We may also find that our job gets more secure as we become more knowledgeable and therefore more valuable to the company that we work for.
– Marriage/partner – When we meet someone and settle down together it means that we then have two incomes. This means that we are far more able to afford loans. Therefore it could be a good time to take them out and pay for things that we need such as a home, furniture and cars. It is best to try to repay the loans as soon as possible, particularly if they have high interest as this will make them a lot cheaper.
– Children – once we have children things start getting expensive. It may be that only one parent is working, one is working full-time and the other part-time or both are working part-time. This will put pressure on the finances as the income is going to go down. Even if both parents continue to work there will be the expense of child care on top of the costs of a child. Preparing for a new baby can be quite expensive but children tend to get more expensive as they get older and eat more, grow and need more clothing and want more things to entertain them. So if you have children it is worth calculating really carefully whether it is the right time for a loan and assume that your expenses will go up.
– Savings – it is easy to think that having savings is a good indicator that we are ready to take on a loan. We have some money to fall back on and therefore will be able to manage those repayments. While this is perfectly true, it is far wiser to spend those savings on the item that you are getting the loan to pay for, if you can afford it. This will save a lot of money. This is because the loan costs money and you will be saving all of this money by not getting one. You will be losing out on any interest that you were getting on the savings but this will normally be a lot lower than what you would pay out for a loan. You can compare the interest rates to get a quick idea, although loans will tend to have additional costs as well as the interest rate. So put aside each month the amount that you would pay on loan repayments and you will soon have enough money accumulated to take out a loan. Obviously, if you are buying a house you will need a loan as saving up that much would take a very long time but for smaller loans, this idea can work very well.
– Caring for parents/relatives – as our parents get older it may fall on us to care for them or for other people who cannot manage on their own. This can mean that we have to give up work or that we do not have time to do extra work such as overtime and therefore it could possibly cause a reduction in income. If someone is being paid to care for them, it may be that you will need to pay them if your parent or relative does not have the money to. It is hard to think of older relatives needing to be cared for, but these days it is really important to factor in that expense.
– Retiring – once we retire then we usually see a reduction in our income. Even if we have paid into a pension scheme we usually have a smaller income. This means that we need to be very careful about what we are spending and therefore taking out a loan, where will need to make repayments, may not be a good idea. You may also find that that lenders will be reluctant to allow a retired person to have a loan because they will be concerned that they will have enough income to pay it.
So as you can see choosing when to take out a loan is not easy. There are things at many life stages which could mean that the time is not right. You will also need to think about the future and whether you will be able to afford the loan repayments for the necessary amount of time. Although we should not be scared of debt and it can be very useful for us, it is something that we do need to consider very carefully. It is wise to spend time calculating whether your current financial situation will be able to cope and thinking about how well it will cope in the future as well and this should help you to be able to make the right decision for you.