The Best Way to Finance Big-ticket Items
There is a big-ticket item on your horizon that you either desperately want or really need and now you have to find the money for it. The price tag may horrify you but financing your purchase doesn’t have to. There are responsible approaches to financing the purchase of big-ticket items, approaches that won’t leave you drowning in debt or living on bread and water.
The best way to deal with big purchases is, of course, to pay in cash as cash payments attract no interest. However, the unexpected happens. To avoid being caught without any spare cash, start an emergency savings fund and deposit part of your income into this fund each month to help you deal with emergency or substantial expenses.
Compare Credit Card Deals
If you can’t pay for a purchase using cash, you need to minimize any debt you will accrue from using a credit card. To achieve this, you need to shop around. Do some research and compare the APRs charged by different credit cards as these can vary substantially. When you are trying to pay off the debt on your credit card, every little bit will help, so even if a card’s APR is only a couple of percentage points less than your existing card, it may be worth making the switch. A good credit history will help you to get a low-interest-rate card and paying your credit card bills in full and on time will, in turn, boost your credit score.
Compare Loan Deals
The process of shopping around for a good loan rate can harm your credit score. Potential creditors are typically eager to get your credit history when you approach them about a loan and the outcome of this can be a ‘hard’ inquiry, which can hurt your credit score. In contrast, a ‘soft’ inquiry will not impact your credit history as it involves you retrieving your credit details or your existing lenders reviewing your credit to evaluate your accounts. The balance that must be achieved when searching the market for low-rate loans is to shop around whilst limiting hard inquiries.
One way to minimize hard enquiries is to make comparable applications for a loan of an identical amount within a short timeframe. These applications will typically be viewed as a single inquiry. So, if, inside one month, you visit several mortgage lenders to check their rates, this will count as just one hard inquiry. NerdWallet has some valuable insights that will help you better understand how to shop for loan rates without damaging your credit history.
If you follow the above tips you will be able to take a responsible approach to financing big-ticket items. However, even if you can finance these bigger purchases, always think long and hard about whether you should and whether the purchase is truly necessary.