What a common and hard-to-answer question! I'll try to answer this question in a one-page article with as much clarity and use as I can. First, I want to talk about the questions you need to know the answers to if you want to make a good decision about cash loans. In no particular order, they are: 1) Do you have enough money to make the payment on time and have some left over in case of an emergency? 2) Will the thing you're buying save you money somewhere else or make you more money than the interest you'll pay? 3) How much will the thing you're buying be worth when you're done making payments? 4) Are there any kinds of deals you can get that will make the loan more valuable to you? I'm going to use the two classic examples of buying a new car or a house with a loan.
So the first question is just a matter of common sense and can only be answered honestly in terms of how much money you make. As a general rule, you shouldn't spend more than 20% of your budget on everything that has to do with your home and 20% on everything that has to do with your budget. This brings up the important point that you should always keep in mind that both a house and a car will cost you money on a regular basis. Now, there are ways to make the upfront payment for cash loans less, so that it takes up less of this 20 percent, and we'll talk about those in the next few paragraphs.
Second, there are some investments that can give you tax breaks if you pay for them with cash loans. For our purposes, the house is this type of investment where the interest you pay on the house lets you get a tax break. You can make more money with the money you save by not paying for the house all at once because of this deduction. I'm talking about putting this "extra" money to work in a way that makes you more money than the interest you pay on the loan. Cars don't have this benefit.
Third, you should think about how long this investment will last. This is why, in my opinion, buying a new car is a bad investment in general, and that's not even counting the finance charges you'll have to pay. There is a good chance that you will owe more on the loan than you can get for the car if you want to sell it before the loan is paid off. This is because cars lose a lot of value right away. Houses, on the other hand, may be a very different story, depending on the market and the kinds of improvements you need to make. Houses tend to go up in value instead of down, so paying for them with cash loans is more acceptable.
Last but not least, you might be able to get deals that make cash loans look better, even though I'm not a fan of buying new cars in general. This really depends on the economy, especially in the car and housing industries, which we will talk about. Often, the deals give you a rate that is incredibly low and affordable, or they give you a certain amount of time that is "the same as cash." This just means that any money you pay on the loan for a certain amount of time will go straight toward paying off the balance, since there are no additional fees.
