Being able to get a loan does not mean you necessarily should get one.
If you ask a hairdresser if you should have a haircut they're very likely going to say yes. If you ask Commonwealth Bank of Australia (ASX: CBA) or Westpac Banking Corp (ASX: WBC) if you should get a loan, they would say yes. They would want to loan you as much as your borrowing capacity allows!
That's partly how we got into the current housing and household debt situation in the first place. People were very keen to borrow and banks were keen to lend it out, what could go wrong?
I think there are several important factors to remember with loans.
It's not free money. You have to pay at back at some point. Loans are particularly dangerous if you use them to buy depreciating goods like general retail spending, that's very damaging for your net wealth. A car isn't much better with how quickly it loses value, but it might be integral for your work.
Interest rates can go up as well as down. Australia has seen its interest rate steadily fall since the GFC, making debt easier to afford. However, interest rates will go up at some point. We are already seeing our own banks implement out-of-cycle rate hikes due to rising wholesale funding costs from the US.
Compound interest is great if it's working for you and terrible if it's working against you. Most people would be better off saving the cash upfront and buying an item that way rather than paying interest on a loan.
I will say that some loans are useful. Getting a loan for a (quality) business idea or business asset is good if it will generate good returns for you. Right now it's questionable if getting a loan for a residential property investment is a good idea.
Foolish takeaway
There's a reason why the big four ASX banks have been such huge profit generators. Lending is very profitable, meaning the borrowers are obviously net losers.
Just because your budget or bank says you could get a loan, doesn't mean you should.
