Question

What are the advantages and disadvantages of borrowing money?

Answer 1

Borrowing money referes to taking money from someone and then repaying it later with some interest as per the terms agreed upon between the parties.

Following are the advantages of taking a loan/borrowing money:

1.The borrower is able to spend on the things we want when he does not have enough money with him

2.Facilitates investment in profitable projects

3.Interest paid on loans in tax deductible

4.It is better to borrow and spend when interest rate is lower than the inflation rate

Disadvantages:

1.Extra burden of interest along with repayment of principal on borrower

2.Huge formalities, collateral required for taking a loan

3.It is not better to borrow and spend when interest rate is higher than the inflation rate