Borrowing or saving: Pros and cons of private loans

19 June 2013 - Mark Maffia

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Borrowing or saving:  Pros and cons of private loans

Taking out a loan or saving up money – both have their advantages

To be able to fulfill a big wish for oneself could take a long time, as it might take a while to be able to afford it.   This period could feel quite endless, but it has one advantage, as it offers the opportunity to find out how important the purchase really is: it frequently happens that the wish has disappeared when the money for it is finally available.   Now a new wish can be fulfilled!

Different savings accounts

Different ways of saving money are available.   One can choose a savings account with easy access.    This offers the possibility of getting hold of one's money at any time, or one can opt for a fixed term savings account where for an agreed time one has no access to one's money but one will be rewarded with much higher interest.

Loans if time matters

But what happens if a purchase cannot wait?    Maybe one has the possibility of taking advantage of a very special deal, maybe a device has to be replaced – the possibility of “saving backwards” sometimes sounds like the best solution.

Taking out a loan can be a good alternative to opening a savings account but many apply for a loan because they just want to finance a spontaneous purchase which they later realize wasn’t worth it.   This is why everybody who is thinking of taking out a loan should consider carefully if is really worth it.   One easily forgets that a loan will make a purchase more expensive.   Also, the value of an object should be high enough to make a loan worthwhile.   Nobody wants to be still paying off something which doesn't exist anymore.

In any case one should always take enough time to look at different offers for private loans, check their interest rates, fees and conditions and compare different loan companies with each other. Before signing any contract, it is worth double checking if one really can afford the monthly repayments.    If they don't fit into household budget, it might be better to do without a loan.   Not being able to keep up with one's monthly payments easily can mean ending up in debt and financial misery.



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