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Do you want to remodel your home? Are you planning a major purchase, such as a car? Or are you planning a special event, such as a wedding? Then it's nice to be in good financial shape. Unfortunately, our piggy bank is not always full enough when we need it. That's why people sometimes choose to borrow money. It is important that you choose a loan that suits your personal situation. At Alpina.nl we would like to give you more information about borrowing money responsibly.
Types of loans
There are two different types of loans: a personal loan or a revolving loan. With a personal loan, you borrow a one-time amount. You can choose the loan purpose, such as remodeling your home or buying a car. In some cases there is a lower interest rate for a particular loan purpose. You pay the same amount of interest and repayment every month. The interest rate is fixed during the term of the loan. So you know in advance when the loan will be fully repaid and you will not be unpleasant surprises.
The other option is revolving credit. Revolving credit is also called flexible credit. You agree in advance with the lender on the maximum amount you can borrow. Once the loan starts you can withdraw money until the agreed limit is reached. You are not allowed to withdraw money above the agreed limit. The money you withdraw must also be repaid. You also pay interest on the amount you withdraw. You agree in advance on a monthly repayment percentage. Usually this is a percentage of 1.5% or 2% of the credit limit. So, if you take out a revolving credit of €10,000, with a repayment rate of 1.5%, you will pay €150 each month until the amount withdrawn is repaid in full.
Pros and cons of borrowing money
Borrowing money has both advantages and disadvantages. It is important that you make an informed decision before taking out a loan. Therefore, we have listed all the advantages and disadvantages for you below:
- With a loan, certain things are accessible (faster)
A new car, a remodel, a new kitchen, a wedding. All things that cost a lot of money. You don't always have enough savings to pay for such large purchases. Sometimes it is necessary to make a major purchase, for example when your car breaks down. Other things you would rather not put off for years, such as a wedding. By borrowing money, you can enjoy that new car and big day sooner.
- You choose a loan that suits your personal and financial situation
You probably don't take out a loan lightly. You think about it carefully first. Moreover, you choose the type of loan that best suits your financial situation.
- You pay interest
You must pay interest on the amount you borrow. How much interest you pay depends on the amount you borrow and your personal situation. You agree on an interest rate with the lender in advance. The longer you take to repay the loan, the higher the total interest cost.
- You are stuck with a loan for a longer period of time
Paying off a loan doesn't happen in a few months. Especially not if you borrow a large amount. So you are stuck with the loan for a longer period of time. With a longer term, you also run the risk that the purchase as broken or exchanged while you are still paying off the loan. In addition, you may face unexpected costs during the term. These will be in addition to the amount you pay off.
- You have less room to save
Each month you pay a fixed amount to repay your loan. This amount consists of the interest plus repayment. Depending on the term of your loan, repayment can take quite some time. So during the term, you will have extra expenses and less money left over each month to spend or save.
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