The politicians and financers are all saying that we need to prop up the banks so that they can loan more money. Their logic is, if we can borrow money we can buy cars, houses holiday’s furniture etc.
My logic is: - If I want to buy a car for 10,000 (pounds, dollars, euro or whatever). I can save 400 a month so in 25 months time I can buy the car outright. Or I can buy it now – get a loan and pay off with my 400 so in around 35 months (19% APR) I can own my car.
Its cost me an extra 4,000 and taken me 10 months longer. When I make the final payment its value is a fraction of its original value.
If I save and buy then I can afford (given everything stays the same) to buy a new car every 25 months. Using a loan I can only afford it every 35 months. Given that the residual value is higher after 25 months I can probably use it as a larger deposit and get a better car.
If I chose to keep the car for 35 months I now have an extra 4,000 to spend on furniture, house, holiday etc.
The encouragement to borrow is the same madness that got us into this mess.
It is better to have a penny in your pocket and owe nothing rather than have a pound (dollar, euro) in your pocket and owe a penny
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