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Side Effects of Taking Loan

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I am not against of taking loan for growing your business because if profit margin is highest and interest on loan is lowest, then, this will be the cost of your return. But, all don't know when will taking loan be best for them. So, best policy is not to take loan at any cost. Following are main side effects of taking loan whether it is home loan, personal loan or any other loan.

1. Loss of Money in the Form of Interest 

In India, we worship money as Laxmi. It means, it will be live there where anybody will respect it. Loss of money in anything is biggest insult of Laxmi. So, laxmi will get out from your home. In accounting, we can explain it as. When we pay the interest on loan, it is decrease of our capital. With this, our working capital will decrease. Every month, this loss will effect on the routine of our business. So, our business will effected from it. It will decrease our return. Off-season will be worst because we have to pay the interest from own pocket. So, it will become our liability which will we unable to get from customer's pocket even we have the big cash from loan.

2. Tension of Mind 

When earning resource will decrease, your mind will feel the tension about how will to repay the loan.

3. Pressure of Repay of Loan 

After taking loan, there are two pressure on debtor. One is to repay the principle and second is interest in instalment. If he does not pay the loan instalment, he has to pay also penalty. If he does not repay whole loan, he can lose his property because it will be under the security of creditor. Creditor can sell it for getting his loan.


4. Decrease the Reputation in the Market

Reputation and goodwill is invisible asset of business. If you take the loan and does not repay, it will decrease the reputation in the market. This is side-effect of taking loan. By taking loan, your power has increased but if you have the bad habit of misuse of money, you can not use it effective way. Due to this, you will waste your loan and all know that you are unable to repay the loan. So, no one give you new loan in the form of material on credit.


5. Decrease the Value of Own Assets 

My friend has take big loan of Rs. 6,00,000  for home and for gambling. There is low resources of his earning. Now, repayment time of loan was near. He was interested to repay loan through selling of his shop.  All know the fact of selling the shop. So, dealer started to decrease the value because he needed the money for repaying loan. With hurry, he sold his shop at less price.



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Accounting Education: Side Effects of Taking Loan
Side Effects of Taking Loan
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Accounting Education
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