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Available in numerous forms, loans are vital financial products for many people – but why do we use them? From mortgages and business loans to personal loans for holidays, weddings and home improvements, we investigate some of the most common reasons for borrowing money.

1. Home improvements

The most popular homeowner loan is undoubtedly for making improvements on a property. This type of loan can add value to your home as well as boosting your quality of living. Whether you want a new kitchen or bathroom, a conservatory or a loft conversion, home improvements can increase the value of the house and make the property a better place to live in – providing the work is completed to a decent standard.

2. Business start-up

Entrepreneurial skills are widespread nowadays and that means there are many of new start-up businesses. For those embarking on this activity, loans are an integral part of the set-up process, but can also be used further down the line as the business grows.

Maybe you need a new van for a small delivery business, or perhaps equipment for a laundrette. You must think the idea through extensively and devise a business plan prior to applying for the loan to avoid facing financial difficulty.

According to figures, approximately two thirds of new employer establishments are still around two years after their creation – a figure which lowers to just 44% once four years has passed. Before you take out a loan to start a business, it is crucial that you do your homework and devise a lucrative plan. The last thing you want is to owe money on a failed business.

3. Weddings

You can spend a lot of money on a wedding or you can keep it quite modest. There are massive parameters regarding how much will be spent on a wedding. However much you decide to spend, make sure that you can afford the repayments on any loans you take, as embarking on married life with masses of debt is certainly not desirable.

4. Holidays

You may well decide one day that you have not seen enough of the world and borrow money to fund your dream holiday. The holiday might be a world tour calling in at all manner of exotic locations such as Thailand, Hong Kong and New Zealand. Borrowing money can enable you to experience all the places you have always dreamt of going; just ensure you can afford to take out the loan first.

5. Balancing personal finances

Loans are commonly taken out to re-balance personal finances and get things back on track. As well as obvious overspending, simple bad luck can leave your finances in chaos; a huge car repair coupled with Christmas spending, for example, can leave you in financial turmoil.

Taking a loan to cope with minor hiccups has become the norm for many, leading to a significant increase in the number of payday loan applications which are submitted. However, these loans have been exposed as being unsuitable for consistent or long term use, with traditional bank loans providing a much more reliable option.

Sources:

http://smallbiztrends.com/2005/07/business-failure-rates-highest-in.html

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