Borrowing in a recession may seem like sheer lunacy at first. After all, who seeks a loan during times of economic uncertainty?
Recessions tend to be defined by instability, layoffs, and decreased consumer spending. But to someone who already has stable financial footing, a recession can be a strategically prudent time to borrow and position oneself for long-term prosperity.
If you’re ready to be the smart contrarian and take advantage of loans when others are waiting on the sidelines, find the right loan provider. It will offer a range of options to fit your requirements and fair payback terms you can use to your advantage.
Consider these five smart reasons to consider borrowing money during a recession.
1. Interest Rates Are Often Lower
One of the most basic strategies employed by central banks to combat recessions is lowering interest rates. Low interest rates mean loans that are ultimately cheaper. If you must borrow in order to purchase a house or a car, or need a small business loan, the cost of borrowing is usually cheapest when there is a recession.
Borrowing during a recession and leveraging the benefits of lower interest rates can save you a significant amount of money.
2. Discounted Investment Opportunities
Pricing for everything from homes to cars to stocks often dips during a recession. If you have the capital at your disposal or can borrow cash, you can buy assets at a lower price than usual market conditions. Again, you can make smart moves while others wait on the sidelines.
While you can come out ahead by borrowing during a recession, don’t do so blindly. Conduct proper due diligence before borrowing. Otherwise, things might go south.
3. To Pay Off or Consolidate High-Interest Debt
One source says that the average household debt loan in the U.S. was around $105,056 last year. Whether you run a business or need to buy a vehicle, you need to proceed with caution if struggling with high-interest debt. You might find that borrowing during a recession provides the opportunity to consolidate with a low-interest loan. With declining interest rates, you can negotiate a good deal and make your payments easier.
4. To Invest in Your Business or Career
Recessions are the best times to invest in your business or career. While everyone else gets scared off, strategic borrowing can position you for the eventual boom.
Borrowing to purchase new equipment, increase advertising, or develop new products can position small businesses to thrive the moment the recession is over.
Similarly, individuals benefit from borrowing for education, training, or certification that improves future jobability and income.
5. To Save or Preserve an Emergency Fund
While it may seem unconventional, borrowing to bolster your emergency fund can be a lifesaver in certain scenarios. A low-interest personal loan or line of credit can provide short-term liquidity to cover essential expenses like housing, utilities, or medical costs.
Maintaining access to cash stops you from making poor money decisions, such as late bill payments.
Borrowing During a Recession Can Be a Good Move
Borrowing during a recession can be one of the best decisions you can make. It may be a sound move if it is done prudently and wisely. Low interest rates on borrowing, undervalued assets, debt consolidation, professional or business development, and savings buffers are all valid motives to borrow during times of economic uncertainty.
The secret is to be aware of where you are financially, borrow only as much as you can afford to pay back, and figure out a reasonable repayment strategy.
Borrowing during a recession with the right mindset and good judgment can make you stronger when the recession is over.
