We only have one life, and the majority of us want to live it the way we want to! This frequently entails purchasing assets for oneself or one’s family.
For instance, as a young working professional who is 25 years old, you want to buy a Giordano watch. However, it’s a little far past your monetary limit. On the other hand, you can frequently use your credit card; but is this the best course of action?
A series of either-or choices always determine how to pay for larger purchases. Credit or cash? Borrow or save? Now or later?
Some people advocate saving money before making a purchase, while others opt for credit. In fact, even financial experts are the opinion that saving up is a better choice for bigger purchases. In the long run, borrowing for the same thing will only increase debt.
Read: How Saving Money Becomes Easy With The Help of Community?
Save For Big Purchases With Online Committee Platform.
Reasons To Save Money Over Borrowing
The primary reason to save money rather than borrow it to purchase assets is to ensure that you reduce your debt burden. For instance, you need to purchase a camera that costs Rs. 25000. You will be able to realize your dream if you set aside Rs 6,000 every five months. Only one thing: you won’t be able to get the camera you need right away unless you wait.
On the other hand, if you buy something with a loan or even a credit card, you are aware that you will eventually have to pay back the money, often with interest. Naturally, paying interest actually results in a higher purchase price. Is it really beneficial? Well, it absolutely does not if you can analyze in depth.
In fact, if you save money and pay in cash, you might be able to get a better deal on a big-ticket item that doesn’t need to be fixed right away. Paying upfront is a tried-and-true strategy that has always been successful. Saving money for a down payment helps lower the overall cost of borrowing.
Advantages of Using your Cash Savings
In many ways, spending your savings is preferable to borrowing money because you avoid the stress of monthly interest payments and are not in debt to anyone. Other benefits of using your own cash savings include the following:
If you use the money you’ve saved in an emergency or for other things like buying a household appliance, you won’t have to pay interest on it. Take, for instance, the scenario in which you intend to spend Rs. 40,000. If you borrow and repay it with a personal loan, you will end up paying Rs. 40,000, plus interest on that amount. This is not the case when you use your savings, as you can pay for the entire amount at once. Thus, the prices of goods and services, does not rise when you use your saving instead of borrowing.
Improves Financial Prudence
Debts and loans must be paid off with future earnings, which encourages reckless spending because the future is unknown and seems far off. But if you use your own cash savings, it’s harder to give up your hard-earned money, especially if it’s for a luxury item that doesn’t matter. Because of this, saving money teaches a person self-discipline by teaching them to cut back on frivolity and stick to what they can afford.
Stress-free spending may be a hard pill to swallow, but it helps you avoid the long periods of tension and stress that come with repaying a loan over a long period of time. If you aren’t careful with how much money you borrow, people who aren’t good at managing their finances can easily fall into debt traps. Because of this, it’s best to only spend what you can afford right now.
Read: Our own habits leads to debt trap: How to get out of it?
Credit Scores Don’t Matter
When you use your savings to pay a bill or make a purchase, regardless of your credit history, your credit score becomes irrelevant and has no effect on your ability to spend. When it comes to loans, however, this is not the case because the majority of banks require borrowers to maintain high credit scores in order to be eligible for borrowing.
Download the Money Club App for all your Financial Needs.
Drawbacks of Taking a Loan
Borrowing money for household purchases has a number of drawbacks. Let us see:
Burden of EMIs
Loans come with the implication to pay the EMIs over the loan repayment tenure that can last from a few months to years. This indicates that the impact of a single significant purchase lasts as long as the loan is not completely repaid. As a result, a portion of your earnings is diverted to paying EMIs, which is clearly not ideal.
Requires a High Credit Score
To be eligible for a personal loan, most lenders require and prefer applicants to have a credit score of at least 725. For those who have a low credit score, this may appear to be a barrier to getting money right away. A low credit score does not preclude loan approval, but it will only result in higher personal loan interest rates than other applicants. Also, if you look at the positive side, in order to prepare for a personal loan, you’d get better financially disciplined to have a high credit score for easy personal loan approval.
Read: How To Increase CIBIL Score From 600 To 750 Immediately?
The majority of banks and other financial institutions charge their customers additional fees and penalties, such as processing fees, prepayment fees, and late fees. These can increase the overall cost of the loan and can become prohibitively higher for some customers.
Approval and Disbursal
The majority of banks have strict eligibility requirements and a lengthy loan application process. In addition, it is uncertain whether or not they will approve your loan in its entirety, if at all. The loan’s disbursement time also varies from bank to bank. This can be a huge obstacle for someone who needs money right away.
How to Save Money from Salary? 15 Smart Tips
Big Purchase By Cash Saving And Without Waiting?
We mentioned above that if you want to buy a camera with your savings, you won’t be able to get it right away, you will have to wait. But there is a way you can get your desired camera without waiting and that is with Money Club. Money Club is an online committee platform that helps individuals save money, invest and borrow money digitally.
Most of you might have heard the name of committee for saving money from your parents where a group of people deposit a fixed sum of money for a fixed period. Every month an auction is held and each member who is need of money gets a chance to take the lumpsum amount. This same method is done online with the help of Money Club App. The online system provides transparency and convenience to all. It also eliminates cash transactions. Money Club assures that all the members joining the club are genuine people so it verifies all the club members. Members have to go through the screening process and different levels of verification.
So suppose, you join a club and whenever you want to buy your dream camera you can bid and within6-8 hours you get the amount in your bank account. To know more about how Money Club works see the video here.
Read: Know Your Money Club platform Journey On The Money Club App
If you want to stay financially healthy in the long-run, try to use your cash savings for consumption purposes and debt for investment purposes. For example, debt such as an educational loan or housing loan can be paid off in the future and will add value to your skills or portfolio. However, avoid borrowing money for luxury products or for personal consumption and try to use your cash savings whenever possible.