Buying On Finance – Is It A Good Idea?

By • Apr 3rd, 2013 • Category: Personal Finance

Sometimes we want something that we really shouldn’t have/ One of the most examples of this is of course when we want a new gadget such as a flat screen TV, a new car, or a new computer but our cash flow at the time is struggling meaning that it’s not a good idea. In this case the obvious thing to do would be to wait, but sometimes we can’t wait or we just don’t want to and there is another solution available for just those scenarios – buying on finance.

When you buy on finance it basically means that you pay the money not in one single go as you normally would, but rather in a series of monthly instalments as though you had taken out a loan. This then means that you’ll pay more in total, but that in the short term you’ll only have to pay a small lump sum and that it won’t feel like that much each month subsequently.

So is it a good idea? Well of course it’s not a simple yes or no here – the answer is that it can be a good idea but that it depends on you and your situation. Let’s look at it in more detail.

Why Buying on Finance is a Good Idea

If there is something that you really need and you have enough cash coming in that you’re sure you can afford the payments then buying on finance is not a bad idea at all. This way you’ll be able to get the car that you need and you’ll often be able to buy on finance more easily and cheaply than you could by taking out a loan. If you absolutely need to get the item and there’s no reason you shouldn’t be able to make the repayments then sure, go ahead.

Why Buying on Finance is a Bad Idea

That said though you will still be paying more for the same item compared with buying it in a single lump sum. While buying in a lump may feel more painful, if you can afford to do it and still pay for your other commitments then you should always take the plunge. Just because you don’t notice the money coming out as much, doesn’t mean you’re not actually spending much more…

The other problem with buying on finance is that it’s very rigid when compared with taking out a loan. Loans put you in debt which is of course a scary prospect for most of us, but the point is that loans can be restructured, they can be consolidated and they can be paid off quickly if you have a windfall. On the other hand when you buy on finance you won’t find there’s any negotiating with the amount that needs to be paid back – which is bad news for you and your credit rating if you suddenly find yourself unable to stick to the commitment.

For larger purchases then, or when you really need to buy something but can’t afford to pay for it just yet, then taking out a loan may actually be the more sensible option.

Of course in most cases the answer is more straight forward – if you can, you should wait until you can actually afford the purchase.

Author Bio: Being a financial journalist at Payday Angels, John Lowrie is at home when he speaks on financial issues like quick payday loans. To know more about him you can follow him on Twitter.

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