Whether they’re for a new refrigerator, broken laptop or car repair, some expenses can creep up on us without warning. And even if we know they're coming, we may not have the means to fund them immediately. Knowing when to turn to credit is vital to avoid needlessly going into debt.
Households and SMEs often use credit to finance expense or investment needs. When applying for credit, we must consider the repayment term, interest rate, fees and instalment amounts.
The most popular products include credit cards, personal loans and mortgages. Because they serve different purposes, we should know which to use and when. That way, we’ll know if we should take the plunge. Here are some points to consider:
To finance or not to finance
If you’re having doubts over financing a purchase of low-medium value, ask yourself this: Is the loan term greater than the lifespan of a product or service we want to buy? If so, it’s probably best to steer clear.
Imagine financing a three-month subscription to an online platform over six months. At the time the subscription ends, you’ll have only repaid half the debt. You would then be paying for something you’re no longer using. It’s better to save up for such purchases to avoid unnecessary debt and stay in fine financial health.
Whichever financing product we use, we must read the terms and conditions and make sure the lender is trustworthy.