Borrow a New Sofa to Buy or Renovate? Many Finns frown when it comes to financing amusements or home purchases with credit, and the phenomenon is easily seen as a sign of living off their assets.
There are strong beliefs and myths about consumer credit, and many people have strong opinions about it, even if they have never taken it. Consumer credit is provided by banks and other financial firms, and there are major differences in terms of credit. Perhaps it is precisely because of the diversity of supply and terms that many are skeptical about consumer credit and forget the potential benefits of a loan. Since consumer credit is not a bad thing in black and white, we decided to break some of the myths about consumer credit!
One of the biggest myths about consumer credit is the notion that those who finance their credit purchases are living beyond their means. However, this is not the case, as the borrowing does not increase the amount of money available in the long run, the lenders always want their money back. The idea behind credit is to make the timing of the amount of money available more appropriate to the needs of the consumer.
Doesn’t it just make sense to wait to save the amount you need yourself, many might think now. Sometimes yes, but always waiting is not the best option, as loan money can make big purchases, which can be even more expensive than a loan. For example, the cost of a deferred renovation may eventually be higher than a loan-funded, timely renovation.
According to some economists, consumer credit can even improve one’s own financial situation as long as the credit is used for long-term wealth creation. For example, this can be a well-done renovation, which can increase the value of the home and thus increase wealth. For example, buying a car can increase your wealth in the long run if owning a car allows you to travel to high-paid work far from home.
Sometimes it is also said that consumer credit is all overpriced and bad the borrower’s economy. There are plenty of consumer credit providers, and with it the terms and conditions of the loan, and in some loans interest rates are really staggering, but there are also affordable loans. Therefore, it is important to read the terms carefully and be aware of the total cost of the loan before taking out the loan.
Only irresponsible people take out consumer credit. Sure, credit can be used recklessly, but the irresponsibility of borrowing depends on the purpose for which you take the consumer credit. The key is to use consumer credit for things that turn borrowing into a positive asset in the long run. For example, borrowing for home renovation may later bear fruit in the form of a rise in the value of the home.
While borrowing for consumer credit may well be justified, over-indebtedness should of course be avoided and borrowing should always be carefully considered. The key to making a responsible loan decision is therefore the rationality of borrowing, the realistic assessment of one’s solvency and the purpose of the loan. Sound borrowing and prudent borrowing can both improve your own quality of life and invest in your future.