If you’ve begun to grasp the idea of saving, and the concept of setting aside a percentage of your income each month no longer destabilizes your budget, your plan to take out a loan for a larger investment should come with an added level of responsibility.
However, before anything else, you should pay attention to what „investment” means to you: an overly expensive apartment to live in might fall more under expenses than investments, a brand-new expensive car loses a large percentage of its value as soon as it leaves the showroom, and the list could go on.
So, the temptation to run to the bank and take out a loan arises when a current need is no longer covered by the amount of money you currently have. Credit in itself is not a bad thing, and it even comes with positive examples if we look at businesses that, in order to cope with growth, resort to loans. The money obtained generates even more money, which not only covers the costs of the loan but also reflects visibly in increased turnover at the end of the loan period.
What's the price of this immediate availability of money?
Because we've mentioned costs, we can't help but analyze in more detail the concept of interest or the "price of borrowed money." In fact, we've encountered the idea of interest when we started saving. If you take out a loan, you pay this price (interest), and if you save, you earn this price from the bank (the bank pays you interest).
From this perspective, credit is the counterpart of saving. Credit consumes the money others save.
What each of us needs to analyze before taking out a loan is the risk associated with this loan. You will certainly learn about this at the bank, but you need to be prepared: the interest is higher the higher the risk.
In addition to the bank's interest, you should also carefully monitor ROBOR and IRCC. If ROBOR sounds more familiar to you, IRCC is the reference index for loans in lei granted to individuals and has been predominantly used since 2019. IRCC shows the current cost for banks.
Also, experts advise us to take out loans in the currency in which we earn income, not in another currency, to avoid the risk of exchange rate fluctuations.
Details make the difference: How and when do I pay?
Furthermore, you might be tempted to choose a longer-term loan, such as a mortgage, for example. You rightly think that a larger amount becomes more accessible if it's repaid gradually over 30 years.
However, you should consider a reality: the longer the loan term, the larger the total repayment amount, which includes the initial value of the loan plus the interest. Why? Because the interest itself is a percentage paid monthly, and it's not exactly in your favor to remain "committed" to a loan for several months.
Also, depending on the type of loan you need, it's important to look at the type of installments.
There are loans where repayment is made in equal installments, and you can do this from the beginning (the total amounts paid on a loan - principal and interest - are equal from month to month). But there are also loans with decreasing installments, meaning that the total amounts differ from month to month, decreasing as you repay the loan to the bank. The financial burden is higher at the beginning in this case, but it eases over time.
This is how details make the difference.
The bank's money for your larger purchases
With firm discipline, you can also use other tools provided by the bank. One of the most common is the credit card, which comes with the advantage of not having interest if the money is repaid during the grace period. Only if you exceed the agreed period will you pay interest.
So, discipline is once again the keyword, to cover various expenses that exceed your monthly budget using temporarily another "pocket" than your own.
Moreover, the credit card also comes with various benefits, such as bonuses or rewards at various merchants, and tracking these discounts can be part of your plan for more careful expense management, isn't it?
Of course, banks also have a solution for situations where you need to invest more money than just a simple purchase: Personal loans can be used when you want to start a major project, such as renovating your home, enrolling in a study program that involves paying a fee, purchasing long-term assets (furniture, appliances), or changing your car, etc.
This is a loan that is granted for a larger amount than credit cards (250,000 lei), but you should use it again with a lot of caution.
Thus, we return to the initial idea: before any decision to make a purchase that involves some form of credit, it's very important to clearly define what an investment means to us and what costs we can afford in the long term.
