When we buy something large, we often consider borrowing money so that we can have the items right away. If we need something in an emergency, such as replacing a broken fridge, then this could be the best idea, if we have no other options. However, if we can wait, then it could be better to do so and save up. Reasons to consider are listed below.
Cost of a loan
Borrowing money to pay for something is costly. We all know that a loan costs money and the amount that it costs will vary. It is really important to calculate the total cost of a loan and consider whether you would still have been prepared to buy the good if the shelf price had been the price of the item plus the loan cost. Some lending is much more expensive than others so it is also important to compare costs of different types of loans as well. Some have no pressure to repay, such as credit cards and overdrafts and they can end up costing a lot more money as you may delay repaying them for a long time and therefore end up paying lots of interest.
Stress of a loan
Owing money can be stressful. Some people do not feel the stress as much as others. It is worth considering though. You may have regular repayments that you have to find the money for and that can be a source of stress. It could also be just the fact that you owe money that is stressful. You have to think about whether you think you will be stressed like this and if so, whether you feel that the stress is worth it or whether it is better to save up for the item and then not go through that stress.
Borrowing money will be something that is put on your credit record. If you make the repayments, it could have a positive impact, but there is a chance it may not. If you miss any repayments or make them late, then it will be on that record. It is worth remembering that it is not only future lenders that will look at the credit record but also landlords so if you want to rent a property then a poor credit record could really go against you there.
Effect on future borrowing
If you have a loan, then it may change your attitude towards borrowing. It might make you feel that borrowing is fine and you may borrow more and more money. A loan or two may be manageable but if you get more and more, you could end up with many more than you can cope with. It may have the reverse effect though in that it may put you off borrowing. In some cases this could be good, but if you want to buy a home or go to university, it is likely that you would need to borrow money and it could make a very positive impact on your life if you did. It may be that you will not want to borrow and get into debt or that you will not be allowed a mortgage due to having a poor credit record or that you have to pay a higher interest rate due to being higher risk. If however you do find yourself in this situation, there are credit repair companies who can assist you in rebuilding your credit record. This will help you when it comes to taking further credit in future.
Appreciate the item more
Saving up for something can make you appreciate it a lot more. You will always be thinking about it as you put money aside to pay for it. You will have to work hard to get that money by earning more or spending less or both. This means that by the time you have the money you will be able to feel really proud of yourself for all of your efforts and you will really appreciate it.
May change mind while saving
There is a chance that while you are saving up for an item, you may change your mind about the one that you want to buy. You may decide that you want a more up to date version of what you were saving for or you may change your mind completely about buying it, deciding that you have managed without it so long that you no longer want it.