We take out loans for several reasons like medical emergencies, education, home relocation and renovation, big purchases, and even just for spare money to use at the ready.
While we mainly use it for financing, taking out a loan can also help us put money aside for our future. You read that right. Borrowing money helps you save money, despite playing a key role in increasing your monthly costs. How? Check these four situations where loans can help you save money.
Finance One-Time Expenses
Opting to save up until you can buy something outright is fine. However, since it takes time, it’s not your most practical option for urgent situations, such as one-time medical procedures, especially if you don’t have emergency funds.
Withdrawing your savings before their maturity date can also mean paying extra taxes and possible penalties. These payments can be much higher than the interest rates offered by other loan creditors.
If you’re not looking for big amounts, lenders also offer small-dollar loans. They have shorter terms, so you can quickly pay everything back. As a result, there will be less time for interest to accrue. Even if the short-term interest rates are higher than long-term loans, you can save money in the long run.
For example, CreditNinja has payday alternatives. They are excellent money-saving financing options that you can use to make it to your next payday without draining your savings and paying costly withdrawal fees. Have you ever considered getting a payday loan?
Higher Returns than Upfront Cash
In addition to big one-time expenses, people usually get confused on cash-versus-credit questions. While there is no one-size-fits-all answer to this, there are times when borrowed money is better than your money in hand.
When purchasing something that appreciates, putting it off until you have enough funds will be effectively pricier. What’s more, if you pay cash up front, only the value of an item grows, not your money. So, the best option is to buy and pay for the item later.
The long-term gains on your investment can be higher than the interest rates you’ll pay on a loan. In other words, you’ll have high returns to offset your spending. So taking out loans saves you money in the long run.
Lower Monthly Expenses
It pays to consolidate your loan if you’re currently saddled with hard-to-manage bills and debts. Debt consolidation means rolling some or all of your liabilities into one single debt, reducing your monthly costs in the long run. Most borrowers who consolidate their loans tend to feel like a weight has been lifted off their shoulders due to its many benefits. Sometimes resolve credit loans may help.
First, your future monthly payments will spread out over a new and longer loan term when consolidating debt. As a result, this extended repayment period can lower your monthly expenses, which can be very advantageous from a monthly budgeting standpoint.
Second, outstanding balances of credit cards and other unsecured debts have varied high-interest rates, reaching as high as 36%. If you consolidate all of them into a single account, you’ll only be paying one, lower interest rate. Unless your lender charges you with a prepayment fee, consider paying more than your minimum monthly payment. Doing so will help you save even more in interest.
Third, consolidating debt into a single, manageable payment makes repayment much simpler and hassle-free. It’s a smart way to control your finances and stay on top of debt, putting yourself in a better financial position.
Lastly, debt consolidation can give your credit score a nice boost. It lowers your credit utilization ratio because you’re using debt consolidation to pay off your debts. Moreover, since consolidating debts helps you make on-time payments, it results in a positive payment history that helps you improve your credit score over time.
Reduces Tax Burden
A loan is a smart way to get away from skyrocketing taxes. Interest costs are tax-deductible. In other words, they can be subtracted from your adjusted gross income, which technically reduces your income, lowering the overall tax you need to pay.
The thing is, it’s hard to get a tax-deductible interest on loans for personal use since they’re not mainly considered income. Moreover, even when allowed, only a portion of the interest you pay on a loan can be tax-deductible, not the entire amount.
The good news is that there are a few exceptions to the rule. For example, you can get a tax-deductible interest on personal loans if you use the loan proceeds for business costs, eligible education expenses, or qualified taxable investments.
Final Thoughts
Lean times may call for desperate measures, but the latter doesn’t necessarily have to be detrimental. With research and the right approach, you can always turn your current inevitable economic uncertainty into an opportunity.
