There’s no shortage of advice out there about finances in general, or personal loans in particular. Opinions are a dime a dozen. And, to make matters worse, a lot of the advice being peddled comes from those who have a vested interest in how we end up thinking and feeling about the idea of borrowing money.
Here’s the bottom line. If you borrow money from a financial institution of any type, you are going to end up paying back more than you received. That’s how they operate and stay in business. While we certainly don’t object to financial institutions, or any other legitimate business making money, most of us would rather they don’t make too much at our expense.
That’s not to say that there’s anything wrong with occasionally taking out personal loans or buying things on payments. In today’s world, there sometimes just isn’t a choice. If we want a dependable car, there are very few of us who can just pull $25,000 out of the bank to buy a new or nearly new one with cash. And, while paying tens of thousands of dollars in interest on a mortgage isn’t completely ideal, it beats throwing the same money into an apartment where you won’t build any equity.
So, as much as we don’t want to pay interest, sometimes it’s unavoidable. But before we take out any loan, we need to make sure that it fits within our budget and lifestyle.
There is a lot of talk about interest rates, and the total cost of a loan, and those are all things you should look at when shopping around for the right lender. But when you’re deciding whether or not to even take out a loan, you should be looking at other things first.
One thing you should always ask yourself before taking out a loan or buying something on time is “do I really need this, or am I being impulsive?” A related question is, “if I buy this, will I be glad I did next week? Next month? Next year?” Simply asking these diagnostic questions will not only save you from paying a lot of money in interest, but also from accumulating a lot of junk that you won’t use.
Assuming you do really need, or at least truly want, something that you have to buy on time, the next thing you need to do is figure out if and how it will fit into your budget. None of us has an endless supply of money, and at some point, we all need to count our beans and make sure we have enough before we add additional expenses. Don’t let a sales person rush you into an emotional decision. Any purchasing decision that can’t wait a day isn’t worth making.
Photo via JMRosenfeld