We all know the feeling of being faced with a big purchase, and not knowing the best way to go about it. Whether it’s a car, a home, a wedding, or a holiday, the price tag is too high to be covered by your salary. That leaves you with two options; you can either borrow the money from somewhere else, or you can use your savings. In some cases, that means you’ll have to delay the purchase so you can build those savings up. With pros and cons on both sides, how are you supposed to choose?
What you probably don’t want us to tell you is that there’s no right answer to that question. What’s best for you is entirely dependent on your own financial circumstances, and as we don’t know your circumstances, we can’t give you specific advice. That doesn’t mean we can’t give you a few basic pointers, though. We might not be able to give you financial advice – and we don’t – but we can give you some information to consider, and we hope that it will help you make the right choice for you.
Let’s look at using your savings first.
Savings – The Pros and Cons
If you have a lump sum of savings you can fall back on, we give you our congratulations! Only 60% of Americans have sufficient savings to cover an emergency $1000 expenditure, so if you could, you’re automatically within the top 40% of the population financially. Doesn’t that feel great?
The most significant and obvious plus of using your savings is that you don’t go into debt by doing so. Even when debt is safe, controlled, and affordable, it’s still an annoyance. Your repayments against your debt eat into your monthly income and will continue to do so until the debt is repaid in full. Using your savings means your monthly income is still your own, and the expense is covered.
You probably think we’re about to tell you that the downside is the time it takes you to save up. We don’t think that’s actually the case. If anything, we think a delay sometimes helps you to quantify how much you really want to make a purchase. Everyone reading this knows the feeling of buyers remorse: it’s the sensation we get when we’ve spent money on something, regret doing so, and can’t do anything to get that money back. It doesn’t feel great when we get buyer’s remorse after ordering a takeaway pizza. It would be much worse to be left feeling that way about an expensive purchase.
From our point of view, the real downside of using your savings for an expensive purchase is that once your savings are gone, they’re gone. You’ve put a lot of time and effort into building them up, and you can only use them once. There are many potentially expensive moments in your life you might want to use your savings for. The birth of a child is expensive. Putting that child through college is expensive. Getting married is expensive. How are you supposed to choose just one thing to sink your money into? How can you be sure that you won’t later wish you’d held on to the money and used it for something else? None of us can see the future, and so none of us know.
Getting A Loan – The Pros and Cons
The first con of getting a loan comes up before you’ve even taken one out, and that’s the fact that you might not get one at all. Credit ratings and computers rule the day when it comes to loans, and if yours doesn’t look good, you won’t find a bank willing to lend to you. You’ll only be granted finance if your creditor likes the odds that you’ll give them the money back. Would you look like a safe bet to your bank, or are you long-odds bet, like a mobile slots game? If you’re one of life’s mobile slots games, a bank isn’t going to put money into you. Mobile slots games are a lot of fun to play on website like Rose Slots casino, but only a fool would ever bank on getting out more than they put in. Institutions who lend money are very cautious gamblers. That’s how they came to have so much money in the first place.
Let’s look beyond that, though. Let’s say you got the loan, and you can afford the repayments. As we said earlier, even if the repayments are fine, you’re still sacrificing some of your monthly income to cover those repayments. You’ll also be paying an interest rate on top of the balance. That means when all’s said and done, you’ll have paid back more than you borrowed in the first place. That means that you don’t just have to be sure you want to pay the full price of your potential expensive purchase: you have to be sure that you want to pay even more for it, and have those repayments hanging around your neck for years.
There are obvious pros, though. The most obvious one is that you have the money immediately, and you don’t have to spend time and effort building up a pot of savings. You can either keep the savings you have, or you can make a large purchase without having any savings at all. In some cases, you’ll be able to apply for credit via the seller of whatever it is you’re trying to buy, and you’ll get a result instantly. Loans are convenient, and in a lot of cases, they’re the only viable way of making a big purchase. If you want to buy a $300,000 house in cash, you’ll be saving up for a long time. A mortgage will get you there a lot faster.
Is There A Winner?
On the face of it, using savings where possible appears to be the wiser option. You don’t put yourself into debt by doing it, and you don’t run the risk of incurring defaults or having your credit rating damaged if something goes wrong in the future. If you want to make a big purchase and you have the money in savings to do it, then using those savings is the safest way to go about the process.
In practice, though, sometimes loans are necessary. Unless you’re prepared to spend years saving up for the really big buys that life sometimes demands of us, a loan is the only way to go. That’s why keeping a healthy credit status us so important!
Ultimately, if you’re considering taking out a large loan and you’re not sure it’s the right thing to do, you should speak to a qualified financial services professional before making your next move.