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Loans

Is it worth Being Frugal or is a Loan an Easier Option?

There are times in our life when we could do with a bit of extra money. One option to get it is to spend less so that we can put extra money aside to pay for the items that we want. Another option is to take out a loan. There are advantages and disadvantages to both.

Being frugal means that you try not to spend very much money. It means that you may go without things in order to save money. So you may not go out so often, have so many holidays, buy so many clothes and things like this. It could also mean you try to use less electricity, shop in cheaper places and generally spend less money in all ways that you can. For many people this may not sound like much fun. Going without things may sound bad, but actually you do get used to it. You can also replace things rather than going without so you still have items, but just cheaper ones. Once you get into the habit of not spending so much it is a lot easier. You stop desiring things that you cannot afford and enjoy the fact that you are managing to save money up and will be able to manage without borrowing in the future. In fact it can feel really good knowing that your savings pot is growing and that you are working hard in order to achieve this. It is also a good life lesson as if you are frugal, you will always be able to save some money up or at least not spend more than you have and it will allow you to be a lot better off.

Of course, if you decide to be frugal and save up for things, it means that you cannot have everything that you want right away. If you do want things that you cannot afford then you can get a loan. This means that you can start enjoying the benefits of the item right away. You will have to pay it off over a period of time, but while you are doing so, you can still be enjoying it. However, because of the costs and interest on the loan, you will have to pay more for the item than you would if you waited for it. Depending on the cost of the loan, this could be quite a bit more. You will need to calculate how much more it will cost and whether you think that it is worth paying the extra money for it, so that you can have it early.

Of course, decisions like this are not always made practically. You may have emotional reasons why you want to buy the particular item. This may be a big influence on your decision to want to have it quickly. You may also need the item to really improve your life. It could be that you need a car for a job and cannot afford it without borrowing. It would probably be better to borrow the money and take the car and the job, rather than saving up for the car and having to turn down the job, particularly if the alternative is no job at all or a lower paid job.

So the decision is not always a straight forward one. You need to consider the items that you want to buy and whether you can wait for them. If you can then saving up will be a cheaper option and waiting to buy something can actually make you appreciate it more because you have had to work hard to get it. However, it never hurts to be as frugal as you can so that you build up some savings and if you need items in the future you will be able to get them without having to borrow money. It can be a good feeling knowing that you are building up some savings and therefore if you do need a big purchase in the future you will be able to pay for it without having to borrow the money to do so.

A loan is probably an easier option in the short term. You do not have to think about saving up for an item you can just borrow the money and go out and buy it. However, you will have to repay the loan and the interest plus any charges. This could be quite difficult. Unlike saving, you will have to pay it every month or else you will be charged even more. If you are frugal and save instead, you could find that you are short one month and you may be able to borrow form the savings or save less that month. It will also give you more time to the purchase and decide whether it is something that you really want or not. You may decide that you do not want it after all and you will be able to use the savings for something else instead.

Mortgages

Is a Buy-to-Let Mortgage Worth the Cost?

Having a buy-to-let mortgage is something which is increasing in popularity. A lot of people are looking for ways to invest money and to generate passive income and see having a property as a way to do this. If they cannot afford to buy the property outright, there is the option of getting a buy-to-let mortgage.

There are a few main differences between a buy-to-let mortgage and a homeowner’s mortgage. With the buy-to-let mortgage you will usually need to put down a larger deposit of around 25% of the property value and the interest rate charges are higher. This explains why rental values can be high; the owner has to cover the price of an expensive mortgage as well as paying a letting agent, insurance and other costs of owning a property such as upkeep. It can be a big responsibility.

Of course, the idea that you can get an income from just letting someone live in a home that you own sounds really great. It feels like you will just need to organise the mortgage and then rent it out and take the rental, paying the costs and keeping the rest. It can work out this way and it can really pay off. However, there are some disadvantages of having a buy-to-let mortgage as well and it is worth considering these.

The buy-to-let mortgage is expensive. Not only is there a high deposit to find but there are also higher interest charges than other mortgages. You may even find that there are higher charges for missed payments and other things as well. It is worth taking a good look at the small print and find out all about the specific charges so that you can make an allowance for them and make sure that you do everything that you can to avoid them.

When you have this sort of mortgage you would normally rely on rent being paid in order to cover the cost of it. This is great if you have a tenant in there, but there will be times when the building will be empty. At these times you will need to find the money to cover the mortgage repayment and any other costs yourself. You will not know how long it will be empty for either, so you may find that you will end up paying this money out for months or even years. This means that when you take out the mortgage, you will need to make sure that you will have enough spare money each month to cover those costs, just in case the property is empty. Many people feel that the property is a way of boosting their income, but at times it can be that their income will actually be reduced as a consequence of it.

Of course, there are also many advantages. Not only will you be likely to get a rental income on the property, which should be enough to cover the cost most of the time, you will also have a property that is gaining in value itself. This means that when you sell it, you will get back more than you paid for it. This will not be the case in the short term and there are a few circumstances where it may not apply, but in most cases it will be true. Most of the time, you will be able to put some money aside and this will cover the times when you do not have a renter in the place.

It is important though to consider the long and short term when you are taking on any sort of mortgage. You will be committing to twenty-five years of loan and a lot of changes could take place in that time. Interest rates could rise significantly, you may have more expenses, there may be a reduction in demand for renting the type of property you have and there may even be a drop in demand for buying that type of house as well. During all of the years that the mortgage covers, you will need to cover the repayments The only alternative is to sell the property but if it has not increased in value or the housing market is slow, you may find this is not as easy as you had hoped.

So there are advantages and disadvantages to getting a buy-to-let mortgage. It can open up a source of income for you as well as an investment. However you may find that you have to pay out a fair bit upkeep for the house and repairs and if it is empty for long periods you will be getting no income to cover these costs and the mortgage. Therefore you need to make sure that you are confident that you will be able to cover these costs, both I the short and long term, if it is necessary.

Tips

Top Tips on Managing Your Loan Repayments

If you have any sort of loan then it is really important to make sure that you make the repayments. You need to make them every time that they are due and the amount that is required or else there will be consequences. You will find that the lender will have extra charges that they will make those that do not pay on time pay out. It will also have an effect on your credit record and could mean that you will be less likely to borrow money in the future. Even if you are not keen on the idea of borrowing, this will mean you may not be able to rent a property as they do a credit check or get a credit card so that you can shop online. It can have all sorts of negative consequences. This is why it is really important to make sure that you do everything that you can to make the payments.

When taking out a loan it is important to think about the consequences. Make sure that you are aware of exactly how much you will be expected to pay back each month. This will help you to calculate whether this is something that you can afford. You may not know what you earn and spend each month and it is important to know this. If you can find out and calculate what your earnings minus your outgoings currently are, it will allow you to know whether there will be enough money left over to cover a loan repayment each month as well.

It is also worth thinking about how you might cope if the loan repayments went up. This will happen if the interest rates are increased unless you have a fixed rate loan. It is hard to predict whether this will happen, but the longer the term of the loan the more chance it has of happening. Also if interest rates are low, they are more likely to go up than down. It is worth thinking about whether you have enough money to cover an increase in payments.

Whether you already have a loan or are considering one, it is good to do what you can to make sure you have plenty of money to cover the repayments. See if there are ways that you can cut down your other outgoings to help you to cover the costs as well as ways that you can perhaps increase your income as well.

There are lots of ways that you can do both of these. To increase your income you could ask for a pay rise, work more hours, change to a better paid job, do freelance work, start up a business, buy and sell online or do other things to get some extra money in. Thing about how you can use your interests and skills to earn more money. There are probably a lot of ways that you can reduce your outgoings too. You could buy less luxuries, switch suppliers to get a better deal, buy cheaper items, use the car less, eat and drink out less or reduce the amount of things that you buy. Some of these ideas may just not be possible for you or not be appealing, but hopefully there is something there that you would be interested in trying. Even if you just switch to a cheaper electricity supplier, work a few extra hours a month or go out once less each month, you could find that you will make savings that will add up to giving you a bit extra money to help you cope each month with the loan payments. It may even be wise to try to put a bit aside, just in case you struggle one month to make the payment. Some people even have insurance so if they are made redundant or are unwell and cannot work the loan payments are made for them. These insurances only pay out under very specific circumstances, so although they can be handy, they may not cover every circumstance that you want them to Therefore if you are considering one, make sure you understand it really well first as it will cost you more money each month so you will need to calculate whether the peace of mind that it gives you will be worth it.

So it is really important to make sure that you can manage your loan repayments. If you have any doubt, then it could be wise to avoid taking out a loan altogether. Otherwise, you will need to make sure that you find ways to reduce your spending or increase income, or both, so that you always know that you will have enough money to cover the payments. Put away any spare money so that if you have an expensive month, there will still be some money to make the payment. Also consider whether it is worth getting out insurance, which will increase your monthly outgoings, to cover you if you cannot cover the monthly payments.