Which is best? – A 0% loan over 12 months or a loan over 5 years at 5%?
The answer is that it depends. It depends on your circumstances. If you can afford to repay the loan over 12 months then the zero percent interest is probably a great deal but if you can’t afford the repayments then the longer term and more expensive deal would most likely be more appropriate for you.
Being unable to make the payments on a ‘cheap’ loan could be far more damaging than lower repayments that you can afford on a more expensive loan. Failing to make repayments will cause all sorts of additional problems from late payment penalty fees through to lowering of your credit score and possibly increase interest rates on other unassociated loans. Failing to make repayments is about the worst thing you can do with a loan and will cause you all sorts of grief. If you can possibly avoid it just don’t do it and don’t be tempted into a position where it might arise.
Look at your personal situation and do the math before you take out any loan. What is right for you may be different from what is right for your friends who tell you about the great deal they just got. Study your situation, your finances and your longer term prospects before taking out more debt and if possible reduce your spending and pay off your debt that much quicker.

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Filed under: Debt • Money

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