When it comes to credit, it often seems like there are two extremes. Some people seem to feel like you should use credit to get everything and anything you want, while others seem to feel that you shouldn’t ever buy anything unless you have the cash on hand. Most will make exceptions for a mortgage or a car loan, but beyond that they feel that you shouldn’t take personal loans out to pay for anything. So, who’s right?

For most people, the right answer is somewhere in the middle. While no one would seriously argue that it’s a good idea to buy everything on payments, there are some items which most people realistically can’t afford without financing them. And, if you do need to finance something, a personal loan is usually a better way to go than in house financing, simply because the interest rates are typically better and it helps you build a good credit standing with the lender.

So, when you’re looking to buy a particular item, how should you determine whether or not you ought to take out a loan to finance it, or save your money until you can buy it outright? There are several questions you can ask yourself that should help you make the best decision for you.

• Is the item worth the price I will pay including the interest? We tend to get fixated on the purchase price of an item, but if we are going to borrow money to pay for it, we should also look at the total cost of buying the item. Make sure your lender goes over the total cost with you. This figure should be readily available, and includes the amount borrowed plus all of the interest you will need to pay. You’d be surprised at what a seemingly innocuous number like 6% adds up to over the course of a year or two.

• Will my life be somehow worse if I have to wait? Being without some items can really affect your quality of life. If the item you’re thinking about purchasing falls into that category, and you can’t afford to pay for it outright, a personal loan might be a good idea.

• Can I really fit the payments into my budget? Even if being without the item will put you in a bind and it’s worth paying all of the interest, if you can’t fit the payments comfortably into your budget without making major sacrifices, you’re better off saving your money and buying it when you can afford it.

In short, you should wait for most things, if you can. Saving first and then buying will save you a lot of money in interest. Not only that, but it will help you establish sound financial practices that can help you get ahead.

Photo via Ciaran McGuiggan