Financing is an alternative capital stream that can help you make important purchases for your home or family. The help of borrowed capital has transformed the way that consumers interact with the marketplace, real estate agents, and lenders themselves. But in order to really take advantage of all that lenders have to offer it’s essential to understand both the pros and cons of purchasing on finance rather than with your debit card or savings in the credit union.
Large Purchases
Making large purchases with the help of a car finance company or mortgage lender is the standard means of buying these commodities in today’s world. Financial institutions offer major assistance for both merchants that sell these assets and buyers who are looking to purchase homes, cars, or other investments such as musical instruments, artwork, or appliances.
When approaching a large purchase, however, it’s a good idea to understand where you stand financially already. Taking account of your current debts as a borrower and their associated annual percentage rate (APR or interest rate) and savings is a crucial part of making smart financial decisions for the future. This is the first step when it comes to taking out new credit and committing to the corresponding monthly payments.
Those with a large credit card debt already in existence, for instance, might consider holding off on a new car purchase for a year or more. Adding another loan amount and monthly payment burden is not a smart financial choice for those with preexisting debts that are already quite large, and even if you are successful in financing a purchase like this through a financial institution, you may be subject to higher interest rates or require a higher down payment as a result of the additional risk that the bank will be incurring as a result of your average or poor credit score.
Credit history: The core indicator of favorable lending.
Financing revolves around your credit history and it can’t be overstated how important maintaining a good credit report is for securing favorable funding for future purchases. It’s the greatest advice for searching for your first home, as well as car buying and savings advice that anyone can give you. Your credit score is broken down into a number of primary and secondary factors that play a role in determining your creditworthiness by lenders.
The two most important pieces of your credit history are repayment practices and the balances of any loans or credit card lines that you have access to. As a result, the ability to utilize a large pool of capital for purchases, and a measure of impulse control that sees these available credit lines go unused is the best way to boost your credit in a hurry. This means that paying off existing debts is a good way to accomplish both in one fell swoop. Overpaying your monthly payments will help you eliminate debt in a hurry and boost the image of creditworthiness for financial institutions that will contemplate extending loans to you for major purchases in the future.
Refraining from making purchases on your credit cards is also a great way to prevent fraud on your accounts as well. Scammers exist all across the United States and in the digital forum of the internet. Looking into purchasing habits represents one aspect of how do banks investigate ATM fraud, among others. Almost 700,000 people were victims of identity theft in 2019, with ATM fraud and credit card theft making up a major contingent of these crimes.
Keeping your credit cards separate from your primary means of payment is a great way to prevent the need for theft investigations or a long and drawn-out process of returning the money to your account. In the meantime, credit card and ATM fraud can leave your credit score to go haywire as the financial institution works out the procedure for crediting your account with the missing cash. But they are rarely able to remedy the adverse effects on your credit score in the short term.
Home Renovations
Financing your home renovations or the purchase of a new refrigerator or other appliances with borrowed cash is another unique feature of the financial institution offerings in this realm. Homeowners often utilize a low-interest home loan to cover the costs of home renovations or repairs, and the availability of these types of loans make them an attractive offering for many homeowners who are looking to increase the value of this important asset or improve the quality of life enjoyed by their family.
One place where this comes into play is in deciding between repairing and replacing a refrigerator, stove, dishwasher, or water heater. The appliances are often top of the list for homeowners looking to increase the comfort level in the home. Utilizing financing can help you make these repairs or total replacements, as well as quality-of-life upgrades that will last for the duration of your time in the home.
Many homeowners choose to go the whole hog and update the flooring or even the floorplan when making these types of renovations. With borrowed cash in a home loan refinance or initial mortgage you can really transform the feeling within the home at a rock bottom interest rate that can be paid back over the coming years in your home.
Financing is a great way to tackle major renovations or to purchase big-ticket items that are long overdue, but make sure you take care of your overall debt picture before taking out any new loan.
