Today’s topic is yet again courtesy of our Friday Twitter live chats, #MAFinancialGrowth, thank you for the interactions, and continue keeping us busy with your quest for financial literacy and financial freedom quest.
As you can tell from the title today it’s about the two financing options that are available to us, be it for a daily expense or a pop-up expense.
We want to address this from a point of view that: one you were aware of the expense but the funds that were supposed to settle it either got diverted or delayed in being paid to you and hence this bill has become more of “an emergency expense” despite it not being an emergency perse.
So, let us start by posing a question at this juncture if this was you in such a situation which of the two options would you prefer? Would rather re-call a saving from a savings platform or would you rather get a quick fix loan? Leave us your answer on the comment box before you read more, then tell us if after reading our thoughts your decision changed
We start with the loan option and look at its pros and cons in equal measure
A quick fix loan is what we’re discussing (with this we mean a loan that you can access in a matter of minutes and with minimal processing requirements).
The pros
- This could be an option to consider when the bill that is being paid is already due and there is no time to await recall funds from a savings platform which in most cases takes at least 48hrs, hence in this case if the time limit is a factor, then a quick fix loan is the option to go for and you’ll find that you will actually kill two birds with one stone in that. You will have an opportunity to grow your loan limit and you will not default on that due payment.
- Taking a loan can help in making you have financial discipline, what we mean with is you will have the pressure to pay and ensure you do not default because that will affect your credibility with the lender, and especially now with the CRB listing, but recalling a saving for someone without the financial discipline muscle well developed you may find yourself lazing around in returning back the amount to the savings even after the funds are available.
- In the case that the amount under consideration is huge amounts taking a loan can help reduce your general tax burden seeing as the interest amount paid on loans is an allowable expense while reporting on your income.
The cons
- The cost of repaying a loan will always be higher than the interest that the savings will accrue under the same time frame.
- The pressure that comes with loan re-payment is not there in the case of recalling your own saving.
- Loans have minimum requirements for one to have access which is not the case with recalling your own money.
- Failure to repay the loan on time comes with penalties, failure to return the savings amount has no penalties
Now we have a look at our second option the savings recall option
This is the best option that most may want to go for as it may look like it has more benefits as compared to the earlier option, but is that the case in reality? Let’s have a look at its pros and cons as see:
Pros
- Recalling savings saves you from paying the high-interest rate charged on quick fox loans, the reason why quick-fix loans are so fast to get is also that they have a very short repayment period which also means they come in with high-interest rates.
- Recalling savings calls for one to have a moment to retrospect seeing as you’re choosing to forego something that you had purposed to achieve, while quick-fix loans allow for somewhat careless spending.
- With recalling your own saving there is no credibility question to deal with, hence defaulting is nothing to worry about
Cons
- Recalling your savings limits the amount you can get to the amount in your savings which has no multiplication factor that could be banked on with a loan facility.
- Long processing time, if the savings are in savings platform and not the normal bank current account.
- Of course, recalling your savings means you’re forgetting achieving what that savings plan was about, remember https://mbuguaandassociates.com/savings-1st-step-is-identify-a-purpose/ Where do we discuss effective savings plans?
Now, remember the comment you made earlier, in the beginning, is it still the same or your thoughts have changed?
Mbugua & Associates.