As we go through our lives, it is inevitable that we will make all manner of both big and small purchases. But in the case of some of those purchases you might wish or need to make, you might not necessarily have sufficient funds already available. Or maybe you do have access to such funds in your savings, but you find yourself unsure whether it would be the right decision to use them, as opposed to taking out a loan.
So, for today’s blog post here at CashCompare, we decided that we would take you through the question of whether to use a loan, or your savings, for that next big (or smaller) purchase.
It’s a fair question; let’s imagine, for example, that you are looking to buy a car, or to treat yourself to a well-earned holiday. Even if you have to consider applying for a loan to cover some of the cost, there might be enough money in your savings account to pay for a sizeable proportion of the purchase.
And there’s no doubt that in the grand scheme of things, saving up money is the cheaper way to afford anything, than taking out a loan that will inevitably come with an interest rate. There also isn’t usually a charge incurred when opening a savings account, and the interest rate on your savings will give you some further money as you build up those pounds and pennies.
So, if the purchase that you are looking to make isn’t one you necessarily need to make right now, drawing upon savings might turn out to be the best option. But on the other hand, if the purchase in question is more urgently required, you may not be able to wait until you have saved up the funds.
Another big factor might be why you have certain existing savings in the first place. If those savings were always meant purely as a reserve for “emergencies”, you will want to be sure of only dipping into those funds in the event of a genuine emergency.
As we touched on above, applying for – and getting approved for – a loan is certainly a much quicker way to unlock access to money. And if the purchase to be made is genuinely urgent – for example, you depend on your car for your daily workday commute, and it requires costly repairs before you will be able to drive it – it might seem to you that you have relatively few other options.
But of course, we would urge the necessary caution here. There may be alternative ways of accessing help that don’t require you to seek a new and separate loan, such as extending your existing bank overdraft, or getting help from friends and/or family.
So, when a purchase needs to be made, it isn’t necessarily just a question of deciding between saving up money or taking out a loan. Furthermore, you will also need to carefully consider such factors as the specific type of loan you would be taking out, and the interest rate you can expect to pay on the loan. Basically, be sure to pore over the fine print of the terms and conditions before committing to anything.
Risk Warning: Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. Always consider your ability to repay your debts to avoid potential financial hardship.
If, for example, you are concerned about keeping the interest rate on your loan affordable, you might look to take out a secured loan – defined as a loan that is tied to some form of collateral, such as your house. But before you do so, you should consider whether you would be able to cope in the event of you falling behind with your repayments on the loan, and your home being repossessed.
It's important to carefully consider your loan repayment plan. Failing to make timely repayments can affect your credit score and result in additional charges, making it more difficult or expensive to obtain credit in the future. Always plan your finances to ensure you can meet your repayment obligations comfortably.
Ultimately, there is no single, one-size-fits-all answer to the question of whether a loan or savings would be better to draw upon when you next look to make a major purchase.
If, however, you do decide to apply for a loan, it might be worth bearing in mind our own positive reputation as a broker here at CashCompare, when it comes to loans for bad credit in the UK. It will take you just a few minutes to fill in and submit our no-obligation loan request form.
it's important to note that the information provided here is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any financial decisions.
"Warning: Late repayment can cause you serious money problems. Always consider if borrowing is the right option for you and ensure you can repay your loan." For help, go to moneyhelper.org.uk.