When you need to buy something that you cannot afford, then you could have a choice between using your savings or borrowing money. We may prefer one particular approach to another, but it is worth always thinking about which will be the best to do. Your financial situation may not always be the same and so you will need to re-evaluate each time you need something like this, so that you can work out what the best thing will be to do. You should consider a number of factors including:
It is always wise to consider and calculate the cost before you make this sort of decision. Although cost will not be the only factor that you might consider you will need to think about it alongside other things. If you use your savings then the cost that you will have to pay is the lack of interest that you will be receiving on your money from the account. This amount will depend on the interest rate on the account that the money is in.
If you are borrowing money then the cost will be the total loan costs. This will depend on where you borrow the money from as the rates vary between different types of loans and different lenders. It is always wise to ask the lenders how much the loan will cost in total and then you will be able to work out whether you think that it is worth it. It will also allow you to compare the cost of the different lenders and you will be able to use this information to compare the lenders if you do decide to borrow the money that you need.
If you do decide to go for a loan, then it is a good idea to think about how much you will be expected to repay and how often. This is something that the potential lender will be able to tell you. This will help you to be able to calculate whether you will be able to afford the loan. You may look at the repayment amount and just assume that you will be able to afford it. However, it is much safer to actually do some calculations and work out how much you need to repay. This is because you will need to be completely sure that you will be able to afford every repayment. It can be wise to actually look at past bank statements and do some calculations to see how much money you normally have coming in and how much you pay out, so that you can work out exactly how much you will have left and whether that will be enough to cover the loan.
What you are Saving for
You will also want to think about what you were saving up for. If you spend your savings then you will not be able to use them for other things. Of course, it might be that you were keeping the money to use if you needed it to fall back on, and this would be the perfect thing to spend it on. However, you may have been saving up for a specific thing, such as a holiday, new car or things like that and this will have a bearing on whether you want to use the savings or not. Think about whether you will be able to save up again if you use them. It is wise to imagine that if you take the loan, you will need to make regular monthly repayments. Therefore, if you use the savings instead, you could make the equivalent payments but into your savings account and that will replenish the money that was in there.