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Borrowing during inflation

Inflation is the general rise in prices over a defined period. This phenomenon can have several causes. It may be due to an increase in market demand. It can also result from rising production costs. Or maybe it’s the result of ineffective monetary policy.

In all cases, inflation reduces the value of money. Businesses and households find themselves in financial difficulty. Many then consider taking out loans during this period. Is this really the best solution?

What’s the point of borrowing in times of inflation?

The value of money decreases during periods of inflation. In other words, household and business resources are becoming insufficient. They need extra money to cover their expenses. It may also involve debt repayment. They then think about taking out loans. At least until we find another source of income.

Is it a good idea to borrow during a period of inflation?

On the one hand, taking out loans could really be worthwhile. And that’s if the entity has the means to pay the monthly installments. For this reason, a thorough study of your financial situation is essential before making this decision. What type of loan should you choose if this is the right solution?

  • Long-term borrowing is the most recommended option. In fact, payments remain stable during inflation. However, revenues generally increase gradually.
  • Fixed-rate loans are easier to manage. However, variable-rate loans can also be attractive. They allow you to adjust interest rates according to the situation.
  • Finally, inflation-indexed loans are the safest. Payments are based on price trends.

On the other hand, this option can still be risky. There are many reasons for this. First, interest rates often rise during periods of inflation. As a result, the risk of default is high. This is particularly true for households with fixed incomes.

What to do in the event of financial difficulties during a period of inflation?

Are you facing financial difficulties? Are you unable to repay your debts? Are you on the verge of bankruptcy? Don’t panic! Professionals can help. At Demers Beaulne Inc., we are licensed trustees in insolvency. We offer several options to suit your situation. For private customers, we have :

  • The consumer proposal that lets you keep your possessions
  • Declare bankruptcy if no other option is available

We also offer customized services for companies.

Conclusion

Borrowing may not be the best way to cope with inflation. Fortunately, there are other, less risky options. Visit our website to find out more. You can also contact us if you need further information.
Are you interested in our services? We’ll set up a meeting to discuss your situation and possible solutions. Finally, you’ll find our contact details on the platform.

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À lire par la suite

The number of business bankruptcies in 2024

The number of business bankruptcies in 2024

A company is insolvent when it can no longer pay its debts and meet its expenses, which can result in bankruptcy. There are many reasons for this. These include cash shortages. Then there’s excessive debt. Let’s take a look at the situation in Canada in 2024.

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