Q:

What are disadvantages of borrowing money?

A:

Quick Answer

One of the first drawbacks of borrowing money is the time involved in completing an application and getting materials together to support the request. Borrowed money also requires monthly payments, which negatively affect future cash flow. Secured loans also expose a person's property to repossession.

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Full Answer

Borrowing money is a way of paying for something before a person earns the funds to cover the expense. While an application is the only requirement for some financing, home loans often require a person to present copies of bank accounts and payment stubs. The interest incurred over the course of paying back a loan adds to the expense of monthly payments and inhibits the borrower's ability to make other purchases.

The worst risks of borrowing money are loss of property and loan default. Secured loans, such as those used for home and auto purchases, give the bank the right to repossess the property if a borrower fails to repay. Foreclosure on a home means a person loses his investment in the property and gives up the home. With unsecured loans, banks don't have right of repossession for any assets. However, banks can submit late payments and defaults to credit reporting agencies. These factors can make serious dents in a person's credit score and future borrowing ability.

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