Thu 4th Oct, 2007
Borrowing Wisely
No matter what you want to buy, it seems that everything is expensive today. A handbag can cost £5000, a sofa can cost £10,000, but when it comes to borrowing, consumers need to consider the fact that the retail price is not the total price paid for the product.
A £50,000 wedding does not cost £50,000. Instead, it costs the original capital and the accumulated interest. While £50,000 will not buy a dream wedding any more, it does take a major chunk out of a person’s savings or home equity.
The important consideration when making a big purchase is value. Many people buy a £5,000 sofa instead of a £10,000 sofa. The first couch is worthless long before the loan is repaid. The second piece of furniture may not only retain its value, but it may even increase in value depending on the market and the demand.
The next thing to consider is the interest. Many people borrow on unsecured personal loans instead of secured loans. Releasing equity from your home can be a good idea if it saves you money.
Many people believe that finance companies cannot force the sale of a home to repay a debt if the borrower defaults. This is no longer true. In fact, a company can ask a judge to force the sale of a home for a relatively small loan. So, paying the extra interest for an unsecured loan, or a personal loan, is no longer ‘wise borrowing’.
The cost of borrowing has made it impossible to grab the first financial product offered.