Many are convinced that without loans it is impossible to make large purchases. In fact, if you bought a thing on credit, it means that you have the opportunity to buy it without a loan. It seems a paradox? Let’s see why it is not worth taking loans, and how they affect your financial condition.
1. Buying on credit is more expensive than without a loan
Buying a thing on credit, in addition to the value of the thing, you pay interest. In the case of consumer loans, they can be substantial. You give the banks money that they could spend on other purchases.
There are people who find it difficult to save money. They prefer to buy things on credit in order to give a certain amount to the bank every month. But what prevents to postpone the same amount without a bank? It turns out, because of psychological problems or inability to manage finances, you are hurting yourself.
2. Together with the loan often impose insurance.
Often for a loan is required to issue insurance. The desire of the bank is clear. If something happens to the borrower, the insurance company pays for the loan. But for the borrower, insurance is an additional cost that increases the final cost of the thing.
3. Loans stimulate impulsive purchases.
You come to the store and see the new smartphone. You want to buy it, but there is no money. The seller offers to issue a loan, to which you agree. After two weeks, the joy of buying passes, and the loan will have to pay another year or two.
The opportunity to buy a thing on credit without a down payment or with minimal payment stimulates impulsive purchases. You can purchase a thing that you really do not need . You just gave in to emotions. When you save money, you buy more meaningfully. Because the accumulation of funds takes time for which emotions pass.
4. Loans reduce future income
Since you are forced to give interest, the amount of your future income will decrease. This may force you to take new loans in order to maintain a standard of living, which in the future will result in an even greater decline in your well-being.
5. You spend time on a loan
Calculate how much time you spend on loan processing, payments, various certificates that the bank requires? To track the dates on which you need to make mandatory payments? To solve problems in case of errors from the bank? At this time you could be engaged in personal matters.
6. In case of delay, you pay fines
If the borrower does not repay the loan in time, he can get on fines. Their size can be substantial. The cost of things will grow not only by the amount of interest, but also by the size of such fines.
7. The importance of credit history is too high.
It is profitable for banks to give a loan to a person with good incomes who is guaranteed to repay the loan. Therefore, to obtain a loan, it is enough to have a stable job and official income. Specially taking small loans to earn a credit history and in the future to take a mortgage at a more profitable percentage – it makes no sense. At least in Russia.
8. You do not receive income from savings
When you live on credit, you do not form savings. You have no money for a rainy day, and any force majeure can bankrupt you. Instead of living on credit, it is better to save money and form savings from which you can earn interest income. For example, making out a deposit in a bank at a profitable percentage .
9. You feel debtor
Living on credit is psychologically difficult. The joy of shopping passes quickly, and it’s time to pay off debts. You are nervous if you delay the salary. Forced to take new loans to pay off on the old. And all this for the sake of buying things that are getting cheaper quickly (any appliances, cars) and maybe you do not need (impulse purchases).
10. Credits often have pitfalls.
Everyone knows the stories about the small print in the contracts, which recruited various conditions for loans. Many have heard of hidden charges. Sometimes it is difficult to understand all the conditions of a loan, and some conditions become a surprise for borrowers.
11. Loans stimulate over-income living.
You can buy a budget foreign car, but decide to purchase a higher-class car with a lot of expensive options on credit. As a result, most of the salary begins to go to pay off the loan and maintain an expensive car. You save on food to put gas in the tank.
Without a loan, you would buy a car within your means and would not save on everything to drive an expensive car.
12. Loans can lead to bankruptcy.
If there are many loans, and the borrower starts to delay, the amount of accrued interest and penalties can lead to bankruptcy and a significant decrease in the standard of living.
As a rule, taking loans is not profitable. You overpay for things and reduce the level of your life in the future. Buy on credit just. You may not even need a down payment. But for any debts have to pay.