Saving Vs Borrowing For Bigger Purchases: Which is Better?

We have only one life and most of us desire to lead the life the way want to! This often includes acquiring assets for oneself or for the family. 

For example, as a 27-year-old young working professional, you aspire to buy that Giordano watch. But it’s a little way beyond your financial capacity. However, you can often make use of your credit card; but is it a wise decision to do so? 

The question of how to pay for bigger purchases is always tied to a series of either-or choices. Cash or credit? Save or borrow? Now or later? 

While some believe in saving before buying, others choose the path of credit. In fact, even financial experts are the opinion that saving up is a better choice for bigger purchases. Borrowing for the same will only increase debt burden in the long run. 

Reasons To Save Money Over Borrowing 

The major reason for saving up money to buy assets is to ensure that you cut down on the debt burden. For example, you want to buy a camera that costs Rs. 25000. If you keep aside Rs 6000 for five months at a stretch, you will be able to realise your dream. Only thing, you will have to be patient till you accumulate the required amount of money. 

However, on the other hand, if you take loan or even use a credit card to buy the same, you know that you will have to repay the amount sooner or later, that too with interest. Needless to say, with interest you actually end up paying more for the product. Does it really help? Well, if you get to analyse in an in-depth way, it definitely doesn’t. 

In fact, by saving up money and paying in cash can make it possible to negotiate a better price for a non-emergency big ticket item. Cash-up-front is a tried and tested age-old-method that has always yielded positive results. 

Although in current times, interest rates offered by savings bank accounts are somewhat unattractive, any per cent of interest coming in is better than any interest going out. Needless to say, this makes saving a least modestly preferable option than falling into the debt trap again and again. In fact, saving up to ensure down payment either for a car or house loan is a better option than borrowing money. Making down payments with saved up money helps reduce the overall cost of borrowing. 

Understand that saving up money in smaller amount on a daily basis goes a long way. Therefore, if you are planning to make some big purchases in the near future, its better that you start saving from now.