Should you save or borrow?
Before you buy anything non-essential, take some time to think through your options. If you can wait a while, you could save for it and not get into debt.
That way you won’t pay any interest, and it might even get reduced in a sale, or if it’s technology, upgraded to a better model.
Borrowing that works for you
Example 1
Sarah is a teacher who travels to work by bus each day. She gets a better job at a new school paying a higher salary, but she can’t travel there on public transport. She wants to buy a car but doesn’t have enough savings so she needs to borrow some money.
This is borrowing that works for Sarah, as her new job pays more. However, she needs to be careful how much she spends on the car, depending on her pay, and make sure she gets a good deal on the loan.
Example 2
Andrew wants to trade in his old car for a new one. He thinks he’ll need to spend £5,000 to get a reasonable car. He doesn’t use his car for work but likes the freedom of having one.
He can get £500 for his old car and he can afford to pay back £100 a month if he borrows the rest. It will take him five years to repay the loan and he’ll have paid a total of £6,423 for the car, including the trade-in.
Andrew should think very carefully about taking out this loan. He will pay an extra £1,423 for his car and will be paying back the loan for the next five years. If his situation changes, for example, his hours are reduced or he loses his job, he may not be able to keep up the repayments.
Top tip
There are a lot of tempting finance offers to encourage you to buy a brand new car. All cars lose value, but brand new cars lose their value very quickly in the first year, so it’s important to add up how much those monthly payments will really cost you and whether you really need to buy brand new.
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Our Newham Money
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Email: ournewhammoney@newham.gov.uk