What Are the Benefits of Borrowing Money?

Done responsibly, borrowing is an excellent way to invest in your future. One of the biggest benefits of borrowing money is that it enables you to enjoy necessities, and make investments, that are now out of your reach. Wise borrowing means taking out a loan or line of credit to help with purchases that have long-term value, such as a home, or an advanced degree. Borrowing costs money, of course. So you need to borrow wisely and conservatively, and make credit and debt management a priority in your financial plans.

Build Credit

Because there are so many purchases you'll make in your lifetime that require credit, getting a loan will benefit you by giving you a credit history that lenders can use to evaluate you as a credit risk. According to Fair Isaac, the company that creates the formula for scoring your credit, the largest factor in your overall credit score -- at 35 percent -- is your payment history. How much you owe comprises another 30 percent, and 15 percent is based on how long you've had credit. The remaining 20 percent is based on how much new credit you have and the types of credit you have. Clearly, establishing credit by borrowing and responsibly repaying is a key factor in your financial future.

College Education

An enormous benefit of borrowing for a college degree is gaining knowledge, opportunities and contacts that can never be taken from you. And with the rising cost of tuition, fees and books, financing your education is likely a necessity. Another benefit of borrowing money for college is that you'll earn more money over your lifetime than if you didn't get the degree. In addition, college-educated people tend to have more financial security and stability throughout their lifetime, according to the Census Bureau. That makes cost of borrowing a worthwhile investment.

Home Ownership

Buying a home is one of the biggest investments most Americans will make. Few people, however, have the money to buy one outright, making a mortgage a necessity. Home ownership is an investment because the home can be collateral against which you can borrow for many purposes, like consolidating credit debt, paying for a car, home improvements or a college education. In addition to bringing you potential tax breaks, borrowing money for a home gives you property that can build your wealth and be passed on from one generation to the next.

Entrepreneurship

Borrowing money to build a business is another way to build wealth. The costs of start-up can easily break a bootstrapper's bank, with mounting fees from renting a location, hiring a staff, buying supplies and making product. Many entrepreneurs, therefore, seek small business loans and venture capital. One benefit of borrowing money for business purposes is that a loan is a sign of trust, and you may be able to attract more investors and a higher caliber of employee to your growing business.

Keep Your Nest Egg

You can also finance your dreams or get money for emergencies by borrowing against yourself. For example, you can borrow against your 401(k) or your savings account. By saving money, or having valuable items against which you can borrow, you can still reap the benefits of getting a credit line established and making major purchases. Plus, you keep the money in your account and it continues to grow with interest.