Taking out a loan from a bank can be a big commitment for your parents. There are several things to consider before making that decision.
Do you have enough money to pay for the item without the loan?
If your parents have enough money in their savings account to make the purchase, it may not be necessary to take out a loan. Paying cash for the item saves your parents the extra costs from interest and frees up your parents’ income to rebuild their savings account and cover other bills.
If buying an item for a business, can you make more money with the item than it costs to pay back the loan?
Business owners use loans to buy equipment, knowing they will make more money using the item. For example, you may ask your parents to loan you $10 to buy a shovel because someone offered you $10 an hour to dig a hole. After one hour, you have received enough money to pay your parents back for the shovel. Every hour you dig after that first hour will make you more money.
Can you make your payments if you cannot use the item to make money?
If business is slow, business owners still need to make payments on the loans for their equipment. They need to have a plan in place to make sure they pay their bills. It is good to have an emergency fund in place that contains enough money to pay your bills for a few months, just in case you need it.