Most people think that loans are bad. Many are afraid of taking loans because they believe it means getting into debt forever. But the truth is — if you use loans wisely and for the right reason, they can actually help you become rich.
In this article, you will learn:
- What is a loan?
- Types of loans (good and bad)
- Which loans to take and which to avoid
- Step-by-step guide to use loans smartly
- Common mistakes
- people make
What Is a Loan?
A loan is money you borrow from a bank or finance company. You agree to return that money with interest in a fixed time.
Example: If you borrow ₹1,00,000 from a bank for 2 years at 10% interest, you have to return ₹1,00,000 + interest in small monthly payments called EMI (Equated Monthly Installments).
Types of Loans (3 Main Categories)
1. Wish Loans – Bad Loans
Loans taken to buy things you want, but don’t need. These are for lifestyle items like:
- Expensive mobile phones
- Luxury cars
- Foreign trips
- Shopping with credit cards
These loans:
- Have high-interest rates
- Don’t give you any income in return
- Make you stuck in debt
❌ Advice: Avoid wish loans. They are risky and don’t help in future wealth.
2. Need Loans – Good Loans
These are loans for things you really need in life. They add value to your future.
Examples:
- Home loan: Buying a house or flat
- Education loan: Studying for a degree or job-related skills
- Marriage loan: For wedding expenses (only if really needed)
These loans:
- Help you build assets
- Improve your career and income
✅ Advice: These loans are good if you plan and repay on time.
3. 💼 Business Loans – Wealth-Builder Loans
Loans taken for starting or growing a business. These loans can help you earn more money over time.
Examples:
- Opening a shop or store
- Starting a service-based business
- Buying stock or equipment
Benefits:
- Create income sources
- Build long-term profits
- Help you grow financially
✅ Advice: Business loans are great if you have a solid plan.
Step-by-Step Guide: Use Loans to Build Wealth
📌 Step 1: Know Why You Are Taking a Loan
Ask yourself:
Will this loan help me earn more in future?
If yes — go ahead.
If no — don’t take the loan.
📌 Step 2: Buy Assets, Not Liabilities
Take loans for things that make money for you.
Example:
- Buy a flat with a home loan
- Give it on rent
- Use the rent to pay your EMI
- After loan ends, the flat is yours and gives income too!
📌 Step 3: Avoid High-Interest Loans
Loans like:
- Credit card bills
- Personal loans for shopping
These have very high interest. They increase your debt and don’t give you any return.
Use debit cards instead of credit cards. Spend only what you have.
📌 Step 4: Use Extra Income to Invest
If you get rent from a property or profit from business, don’t waste it.
Start a SIP (Systematic Investment Plan) in mutual funds.
This will grow your money over time.
📌 Step 5: Pay EMIs on Time
Never miss your EMI payments.
This keeps your credit score high.
You will get better loan options in the future.
⚠️ Common Mistakes People Make
| Mistake | Why It’s Bad |
|---|---|
| Using credit cards for shopping | Very high interest |
| Buying gadgets on loan | No return, only expense |
| Taking multiple loans at once | EMI becomes hard to manage |
| Following friends/family blindly | Your needs may be different |
📊 Simple Comparison Table
| Type of Loan | Used For | Good or Bad? | Reason |
|---|---|---|---|
| Wish Loan | Phones, Cars, Trips | ❌ Bad | Only spending, no return |
| Need Loan | Home, Education | ✅ Good | Adds value to life |
| Business Loan | Shop, Services | ✅ Good | Builds income |
Final Words
Loans are not your enemy.
They are tools. If you use them wisely, they can help you:
- Build assets
- Increase your income
- Reach financial freedom
But remember:
- Never take loans for showing off
- Always plan before taking a loan
- Invest your extra income smartly
📌 What You Should Do Now:
✅ Take loans only for need or growth
❌ Avoid loans for luxury or show-off
📈 Use income from loan-funded assets to invest more
🧠 Stay financially educated and disciplined