Borrowing vs Saving Money: A Look at When Each Option is Best

by - Wednesday, April 24, 2019

So you have had your eye on that new MacBook Pro for a while now, but can’t decide whether to wait longer and save up enough money, or take a loan and buy it already! Well, both are options worth considering and they each come with their own set of pros and cons. A lot depends on the particular situation than anything else really. To make the decision easier for you, we are now going to discuss a few of the most likely scenarios where choosing between saving up for that big purchase and taking a loan becomes difficult. By the time you are done reading it all, you will most likely have a very clear idea about what should be the right decision for your particular situation.

Are You Already in Significant Debt?

Being in debt is almost unavoidable these days, but the definition of debt differs quite a bit in the financial market. Every payment you make with your credit card technically puts you in debt to your credit card company, until the time you pay them back completely. If you are able to pay them back before interest is charged on the unpaid balance amount, you are no longer in debt.

Even if you just pay the minimum amount charged by the credit card company per month, or convert a big purchase into an EMI, it’s not a problem and it shouldn’t affect your credit score too much either. Unfortunately, your credit score begins to drop significantly when you start missing those monthly payments.

This usually has a series of chain reactions on your financial reputation, some of which can be summarized as follows.

· As your credit score drops, you become less likely to get future loan approvals
· Even if a party or a bank gives you a loan, they will charge high-interest rates because of that low credit score

· The interest rate on the current unpaid debt begins to mount, boosting the total to exorbitant sums
If you are in such a scenario, your best bet at finding a loan for your purchase is to try your luck at Bonsai Finance because they will connect you to lenders with instant approval, without a credit check. The amount could be anything between $100 - $5,000 and you will be given the option to pay it back in installments. The exact parameters of the loan and the interest rates will vary according to the particular lender, of course, so be mindful of the terms & conditions.

Ideally, you should first pay off significant, unpaid debts that you still owe to any lending party, before applying for a new one.

Even if you pay everyone back in full, it takes time for the credit scores to get readjusted accordingly, but with the help of Bonsai Finance, you can get a loan even without the credit check, so that shouldn’t matter. The only thing that matters is your ability to pay back the money that you are about to borrow now, and that ability could be highly compromised when you are already in significant debt.

Are You Getting a Huge Discount for Paying Up Front?

If there is this expensive product that you are getting a killer discount on, but that discount is only applicable when paid up front, saving up might actually be a better idea. On top of the fact that you will be paying less for the product than usual, you will also be saving on the interest, which is inevitable when you borrow.

However, there’s a catch to it, which can be summarized by the following question - will the discount still be valid by the time you end up saving all the money that you need to buy it, even with the discount?

Black Friday Deals do not last for more than a day and sometimes they last for just a few minutes! While not every good deal can be found just on Black Friday, awesome deals usually expire pretty fast, or they just go out of stock as people snatch all the discounted items up. This is true for both online and offline purchases, so there’s that question of validity and availability to be considered here.

Can You Afford the One-Time Payment?

People often consider taking on a debt to be an uneconomic option in the long run and in some situations, that can indeed be true for sure. However, one also needs to consider whether or not they can afford to spend all that money at once because big cash purchases do put a significant dent in your bank account and that can in itself be a short term problem, which might push you towards debt anyway.

On the other hand, intelligent debt management can actually be a lot less stressful, as long as the amount you pay to the lender every month is something that you know to be affordable for you. Even though the loan will cost you more money in total, smaller payments every month can be a lot less taxing on the wallet than a significant vacuum in the bank account all at once. It’s the reason why impulse purchases are a bad idea.

Finally, there is the question of immediate need. When you have lost your phone in the subway and need one immediately to carry on with your daily life, saving up for a new phone next month may not be the most practical option, in case you don’t have the money to buy a new phone. Borrowing or taking a small loan is better in that regard because you can simply pay off the small loan next month or in the next three months if you need to.

Now that we have discussed a few of the key points and scenarios regarding the saving vs borrowing dilemma, see which of them are the most relatable to your own situation. Once you are able to do that, the choice should become a lot easier to make.

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