Using loans for intended purposes benefits both the borrower and the lender.
When you take out a loan for a specific purpose, it means that you agree to use the funds exclusively for that purpose. The lender may have specific terms and conditions related to the use of the loan proceeds.
Benefits of using loans for intended purposes:
- Ensures that the borrower is following a planned and structured approach to their finances
- Helps borrowers stay focused on their financial goals and avoid impulsive spending that can lead to debt problems.
Using a loan for a different purpose than specified in the loan agreement can have consequences.
- It is a breach of contract
- Affects your repayment capacity that increases the risk of defaulting on the loan
- Damage your credit worthiness for the future
- Legal actions by the lender, for instance, call back the loan immediately (ask you to repay the loan immediately)
Borrowers should carefully consider their financial needs and obligations before taking out a loan and adhere to the terms and conditions specified by the lender. Once you avail the loan, use the funds responsibly for the intended purpose.
