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Rediff News  All News  » Getahead » There are only bad loans and worse loans!

There are only bad loans and worse loans!

June 07, 2014 15:20 IST

There are only bad loans and worse loans!

P V Subramanyam

For the past 3 decades (at least) YOU have been told by us (media) that there is 'good' debt and that there is 'bad' debt.

Good debt is a beautiful concept 'created' by lenders with a great, benevolent image to say that:

  • Interest rates are low
  • It is tax deductible and
  • It is used to fund an asset that will always appreciate

Bad debt on the other hand is:

  • You take it because you want to live beyond your ability to pay cash (the world accepts that cars can only be bought on installments),
  • Interest rates are high, but that is ok. Banks have to earn, do they not?
  • It is not tax deductible, but it allows you to enjoy life NOW and pay for it later

Typical examples in the first section is of course a HOUSING loan -- sold to you saying that if you borrow at 10 per cent per annum and buy a house, the house will ALWAYS appreciate at 14 per cent per annum. So your wealth will always go up.

Awesome story.

Then there is the education loan. Take a loan of Rs 10,00,000 do an MBA and get a Rs 12,00,000 job.

Awesome return on investment.

The next category is of course car loan, wedding loan, cricket match abroad loan, divorce loan, etc. -- largely any reason as long as the banker is sure he will get back his loan amount.

All loans are bad. If they have tax deduction, that just acts as malam (balm) that is all.


Photographs: Uttam Ghosh/