It is one of the most common questions among citizens, especially in this period of severe economic crisis. Is it better to save and keep a nest egg for the moments of need or to ask for a loan to cover expenses? According to the experts, in reality, the answer changes according to the purchase one intends to make.
Many banking institutions and financial companies ask the applicant what the purpose of the loan is and based on this they also establish different conditions. The rates applied change, in fact, according to the good you want to buy: if it is durable, like a car, the rate tends to fall, while if it is a recurring good or need, such as the payment of certain taxes, the rate goes up. In this last case, then, for example, it would be appropriate to set aside money, from time to time, in view of the future expenditure to be faced.
Untangling the expense items of a loan
Untangling the expense items of a loan is not always simple and affordable for everyone. It is necessary to take into account the cost of each individual component and the monthly payment. Furthermore, it is necessary to know and consider, before subscribing a loan, the Tan – nominal annual rate (interest rate expressed as a percentage and on an annual basis based on the financed capital) – Annual effective rate (measure expressed in percentage terms including of any additional charges, such as preliminary costs and insurance costs, which are charged to the customer).
Nowadays there are more and more Italians who use the finalized loan anyway, or the loan that allows the most disparate items to be paid in installments. The boom is certainly also linked to the difficult economic situation and the idea of being able to amortize the expense, without touching our capital, through future revenues. Experts advise, however, to be wary of promises of easy funding for protesters, housewives and the unemployed, especially when it comes to substantial amounts. High interest rates and expensive ancillary costs could be hidden behind it. It is advisable to always read the loan agreements carefully so as not to fall into such traps because of non-transparent expressions.
Payment of mortgages and taxes
Unlike targeted loans, where the seller of the products directly receives the sum from the financial institution with which it has an agreement, the personal loan allows the applicant to be free to choose the most convenient store or dealer and thus use the whole attention in price negotiation. From cars to vacations to home renovation, personal loans are now an anchor to hold on to when we have to support a major purchase and our desires clash with the money barrier. If we have to buy a new car, pay for surgery or do some work at home and ask, for example, for a 10,000 USD fixed rate loan, then after 18 months we should repay 10,704 USD with 704 USD in interest. If, on the other hand, we ask for this funding to meet the payment of mortgages and taxes and therefore to obtain greater liquidity, the money to be repaid will have risen compared to the first option: 11.009 USD in 18 months. If instead we want to pay off the debt in 10 years, the share in total will be a good 17,215 USD. Hence the advice of the experts to keep in mind the dates of the deadlines and keep something for their payment, avoiding to request the disbursement of a loan for these circumstances.
For small purchases, such as smartphones, personal computers and accessories, we must instead pay attention to the contract and the preliminary investigation costs for the loan. This data will help us to understand whether it will be worthwhile or not to request a form of financing to support this expense.