Consumer credit lures you to spend money you don’t have and destroys your long-term spending potential. How to avoid consumer loans.
Unnecessary consumption and unnecessary loans
Consumer loans have very high interest expenses, and the money usually goes to expenses that do not provide lasting value in your personal finances. It can be a journey or a computer that you want, but you can’t really afford with your current economy.
The high interest expense on a consumer loan means that your finances will run with the handbrake on. A consumer loan gets the interest rate effect that would otherwise have to work to build your fortune to work against you. You lower your savings and risk completely removing it.
In addition, consumer loans are often marketed to young people and families, where these loans are extra harmful, as this group typically has poor conditions for saving.
Are you dependent on loans?
Expensive consumer loans
The terms of the consumer loan mean that the annual costs often reach 15-20% or more. In those times when interest rates are low, inflation is low and the value of the interest deduction falls, it is expensive to get behind with its savings at a young age.
It costs you DKK 50,000 to take a consumer loan of DKK 100,000, which you pay back over 5 years with annual costs of 20%. That way, you will pay 50% more for the item than everyone else. You shouldn’t have quite a lot of this kind of loan before it becomes completely impossible for you to save and secure your long-term consumption.
High rent loans destroy your finances
How to avoid consumer loans
It is best to completely avoid the consumption that makes you have to take consumer loans into a bank or a finance company. Always check the annual percentage rate – APR when considering borrowing. If YOU are higher than 8-10%, you must always refuse.
If you already have a consumer loan in a bank or in a finance company, you should increase your repayments and possibly convert to a cheaper loan if possible. Can you, for example, convert to a mortgage loan without extending the repayment period? Of course, this requires that you have real estate. However, this assumes that the loan has a certain size in order for it to pay, because there are high costs of taking up and rescheduling mortgage loans.
As far as possible, you should try to withdraw your expensive bank loans and consumer loans as soon as possible. It is about getting the interest rate effect to work for your economy and not against it. In a low-interest society that we currently have, consumer loans are very expensive.
Having a consumer loan in your economy is like driving a car with the handbrake pulled. It limits your long-term options.
Do you pay too high an interest in the bank?