Category: Loans

Is it wise to get a loan in a Recession?

Whether to get a loan can often be a tricky decision. However, choosing hen to get the loan can be just as difficult. If the economy is in a recession, for example, this could make you wonder whether it is a good time to get a loan.

When a country is in recession it can have a number of effects on what happens in the future. As the economy is not predictable, it can be hard to know what these might be. However, based on past recessions, predictions can be made by looking on what happened then.

A recession is when the economy shrinks. It means that not as much money is being made. Although in the short term, this may not be significant, once it happens for a period of time, it is known as a recession and this can have knock on effects on everyone. If the economy is shrinking it means that business is not doing so well. This means that redundancies could be a possibility and that pay rises are unlikely as business will have less money to spend as they are less profitable, possibly even making losses. It will also affect consumers as they start to think that they may have less money in their household and therefore will not spend so much. They will save some money just in case they need it and this will lead to business shrinking even more as people are not buying from them. Until people in general believe that the economy is going to improve, their behaviour will not change and the economy will not improve. So moving in and out of recession is very much linked to whether it is thought that we will go into or out of recession.

Borrowing money in a recession can be risky. If you lose your job as a result of the recession, then you are likely to struggle with the repayments. If there is more than one income coming in to the household then this will reduce the risk of you not being able to make the repayments. It will also depend on the nature of our work and whether the industry you are in is likely to shrink and whether you have skills which are easily transferable to another role. Some companies will still be employing in the recession and so even if you lose your job, you may be able to find another, but it will depend on what is available and whether you fit those jobs.
Whenever you get a loan, there is always a risk. It is wise to make sure that you really need it and that you have compared different loans to make sure that you have the best one for you at the best possible rate. Make sure that you consider how you will afford the repayments and consider whether it is something that you think you will be able to manage both in the short term and the long term.

In some ways you may feel that you will be worst off during a recession and so if you can afford loan repayments at that time, then you will be able to afford them at any time. Although this could be correct, you may still be taking a risk as you could still lose your job if the recession continues for a long time. Some recessions are over with fairly quickly but others are not and even when they end growth could still be slow and some industries and companies will take longer to recover than others. It can still be very unpredictable.

Taking a loan can always be a difficult decision. It is always worth considering both your personal circumstances as well as the general economy when thinking about it. Make sure that you are confident that you need to borrow the money and that you will have the means to pay it back until it is completely repaid. Even with an open ended loan, where there are no fixed repayments, such as with a credit card or overdraft, you need to consider that you need to repay it at some point and the sooner you do so, the cheaper the loan will be.