In some cases it is preferable to borrow money. Although it sounds a bit strange that it is better to borrow than to pay straight away, there are some situations when you actually profit from borrowing. Then there are some situations where most people have to borrow, whether they want to or not.
Borrowing money instead of selling assets
For example, if you have shares or funds that you can sell, then you may be able to pay without borrowing, but if there is no selling position on the shares right now, you would actually save money on taking a loan instead. Then maybe the future gain on the shares (or the loss you would make by selling) is greater than the cost of the loan. The same can also apply to other assets such as housing, car or basically anything that is worth a little more. If you get less money than the thing is worth or are forced to make a bad deal, a loan could very well be more economical.
Then it is important to make sure that the right choice is made. If you take shares, it may still be worth selling them instead of borrowing, even though it would be a loss at the moment. Maybe they do not go up during the loan period and then you would have lost even more money. It may also be that a certain loss is okay to take as you do not have the uncertainty of having money that will go out every month for repayments. So think this through carefully before making a decision.
Borrowing money when buying a home
For example, if you are buying a home, it is usually advisable to borrow money to finance the purchase. A villa or apartment can cost many millions and it is not the sums that anyone can pick up and pay in cash. Just as I mentioned above, maybe some would be able to collect the money by selling assets, etc. but it is usually not economical to do so. A mortgage loan is basically the cheapest type of loan you can take, low interest rates and you pay back over a very long period of time, which means that the money you could use easily can earn you better if you invest them properly.
When talking about loans you often say that there are three types of loans that are totally okay to have. It is partly a car loan as you often need a good car and these cost money. Then there are CSN loans as they are really cheap at the same time as it is an investment in your education. Lastly, we have mortgage loans as they are also relatively cheap and it is difficult to buy a reasonable home without borrowing. If everyone were to save money first for the entire dwelling, many would be able to stay at home for many years longer if they could even move at some point.
Borrowing money to get old loans settled
This may sound a little strange, perhaps, to borrow money to take care of loans you already have, but it’s not as strange as it sounds. Just keep reading. This is mainly for you who have several different smaller loans in the past or who have, for example, bought things on installments or have debts on your credit card. When you have several different loans and things on installment, it becomes very expensive to pay interest on all the money you have borrowed. It may not be such a big loan, but the interest rates are a lot of money, money that you might not really be able to afford to pay.
The solution may be to take a single larger loan that covers all the small loans you have, pay off these small loans altogether and then only have their big loan remaining that you pay off. The benefits of this are quite numerous. First, you collect everything in one place so that you only have one cost each month instead of several. It provides better control.
Secondly, you can hopefully take out your large loan against some type of collateral, for example, borrow on your home or similar and then get a much better interest rate than you have on all these small loans. When you buy on installment, for example, you often have really bad conditions. This way you can quickly pay off everything and just have your cheaper loan left. Of course, this is not a solution for everyone, but it is suitable for many.