Although loans require you to have a good credit rating, it can be quite useful in saving money and take care of any urgent expenses.
Here a few ways how you end up saving money when you take a loan vs when you use your savings.
- Pay lesser rate of interest: Interest rates charged on personal loans are usually lesser than if you take a loan on a credit card. Hence, instead of using your credit card, you can use a loan facility with your bank and save money in the short term as well as long term.
- Clearing off debts: If you are having loans with a high rate of interest, you can use a loan with a lower rate of interest to pay it off and save money. For e.g. if you have a student loan with high-interest rate, you can repay it by using a personal loan option. But you must also check with your bank as sometimes they may charge you a foreclosure fee for closing the loan.
- Tax benefits: Although having a personal loan has no direct impact on your tax, but if you take a loan for renovating your home, there is a tax deduction that you can file for a certain amount. You must keep all your receipts to provide to the bank to get the benefits.
- Option for an appropriate repayment plan: You can choose a repayment plan as per your current and future financial status. This can help you to enhance your savings. Sometimes you may be expecting a promotion or an income from some source. You can plan your payment schedule accordingly as the EMI starts usually at lower interest rate and gradually increases over time. You can also do a prepayment and save on your interest. But always check with your bank whether this will attract any penalty or not.
- Better credit score: If you are taking a loan and making payments on a regular basis on time, your credit scores will be useful for you to take any future loans as well as get loans on a lower interest rates. This can help you save a lot of your money as well.
While these are some of the clear benefits of taking a loan, there is yet another factor. Most of the financial institutions are competing to get new customers by keeping their interest rates quite competitive. So, you can end up saving well your payments if you go for the bank that provides you least rate of interest.