Choose the best financing

Collapse debts can ruin any economy, so before paying in installments or to ask for a loan, it is convenient to think it over, analyze the options and choose the most appropriate for what is going to be acquired.

  • Mortgages

If the money does not come to buy what you need, is it better to buy in installments, pay by credit card, ask for a loan, apply for a loan, extend the mortgage …? Actually, the financial advisors say that when you can not assume the cost of what you are going to acquire what you have to think is if you really need it, if you could postpone the purchase until you have the money and if the family budget gives to incorporate new monthly payments. If you still decide to borrow, the choice of financing formula will depend to a large extent on the object or service that is acquired. “The financing has to keep a certain coherence with what you are going to finance; you can not finance a trip to five years because you will go on vacation once and you will be paying for the trip for a long time after having enjoyed it; if you can not pay the loan for the trip in a few months is that you are incurring an expense that does not correspond, “exemplifies the president of the Association of Investment Advisers, Financing and Judicial Experts (AIF), Jordi Paniello .

The experts assure that, although any indebtedness can put in risk the familiar accounts, not all the debts are equal: there are good, bad and very bad. They qualify as good that goes to buy goods or services that over time increase their value or provide income, such as training courses, a business, a home … Bad debt is that which is dedicated to buying things that do not you need or can not afford (travel, car …) and very bad that is contracted to pay other debts or that has very high costs, such as generating overdrafts in accounts, withdraw money on credit at ATMs, postpone payments with the card or request quick credits by phone. “A very clear example is the car: if you need it to work, resorting to a loan to buy it is good, but if you want to wear it on the weekend, getting into debt to acquire it is bad,” says the president of EFPA Europe, the European association of financial-patrimonial planning and counseling, Josep Soler .

From consumer, organizations advise that, regardless of what is needed, before asking for a loan to explore other cheaper alternatives such as requesting a loan to a family member, a payroll advance or possible financing by the establishment where will make the purchase. “Whenever possible, the best financing is a family loan documented from a fiscal point of view and at a zero rate so that no one is injured in the face of the Treasury ; as a second option we would recommend a consumer loan or a personal loan, and only in the last resort, the financing with credit cards, because they originate many interests and it is easy to fall into over-indebtedness “, says the person responsible for economic issues at Ceaccu, Fernando López .

To the consumption or personnel
Lopez explains that consumer loans, in which the guarantee is the good that is purchased, tend to be more expensive than personal loans, in which the owner responds with all their assets, but sometimes they are simpler to obtain. Soler agrees that, for cost, the best option is usually a personal loan from a bank, although for some people it is easier to obtain a consumer credit from a financial company because they are more lenient insolvency requirements. Instead, Soler warns about the use of credits between individuals: “It is important to be clear about who leaves you money, what happens if you do not pay, formalize the operation well to avoid tax claims and do not forget that many relationships of friendship or family break for a loan given with good will. ”

In terms of financing through credit cards, the director of the Institute of Financial Studies (IEF) emphasizes that “it is the most expensive consumer credit that exists”, although he believes that its convenience and flexibility is an option useful to finance expenses momentarily, for a few days, when you are about to receive income that will make the loan unnecessary. “Financing with the card implies annual interest rates of more than 20%, but if it is for a few days, it will not be a drama to pay 7 euros for a purchase of 500”, exemplifies.

Also for convenience, some consumers are tempted to resort to the mortgage to finance other purchases. A priori it may seem a good solution because the interest rate on mortgage loans is lower than the personal rate. However, experts warn that it is not worth requesting or extending a mortgage to cover small expenses because the formalization costs are high and the terms are very long so that interest is paid for a longer time.

An alternative that may be interesting is the zero-rate financing that some stores offer to increase their sales. “If a household appliance costs you the same in terms that in cash, it is worth taking advantage of this financing, but you should always look at the contractual conditions, see if there are no interests there are costs to formalize the operation or a penalty for early cancellation, for example, “explains Paniello.

The same happens when you go to the bank to ask for a personal loan. It is not enough to look at the interest rate to know how much it will cost. You have to determine if that interest rate is fixed or variable, what fees (study, opening, etc.) are applied, and when comparing different offers, it is necessary to always compare the APR (annual equivalent rate) of loans to the same term and of the same type, because mortgages, for example, have expenses that are not included in the APR.

Loan or credit
Although colloquially speaking of loan and credit, the financial advisors warn that it is convenient to be clear about the differences between them before going to negotiate with the banks. A loan is a contract by which a person or an entity gives a fixed amount of money to another on the condition that it returns that amount plus the agreed interest in a certain period of time and, normally, in the form of periodic installments.

The credit, for its part, is a contract by which the bank makes available to the customer an amount and the customer agrees to return that same amount on a specific date. During this period the client can use the money or not and will pay interest for the amount withdrawn and the time of use, although on the unpaid money will also have to pay another interest. “It is a useful financing to cover gaps between collections and payments for those who have seasonal income,” they write.