To not think loans for luxury items are a good idea?

[ReallyBadEyeDeer]

As in expensive watches, designer handbag, sports car, aesthetic surgery.

Things that someone might really really want and arguably could make them much happier in life, but involve taking a bank loan to pay over a length of time.

Even if you do have the income to pay it off monthly without causing financial strain. What if something changes in future?

I used to avoid credit but then found sometimes having no credit can work against you.

I generally only get things that way if it works out cheaper, like a 0% deal on something when I have enough to clear the full balance already.
I've also bought things in the past when they had a substantial discount which was time limited, so even if I paid a small amount of interest it still worked out cheaper than buying it later at full price.

I don't borrow what I don't have, but this way my money works for me and I don't get the penalty for not using credit enough if I ever do need it.

I don't want things like luxury designer handbags etc. I do use credit - Klarna or Paypal pay in three sometimes. I'm trying not to use my credit card, and to have a small pot of savings to treat myself, but find I don't like to take money out of the pot. I tend to think if the pot can cover the debt if I had to pay it off now it doesn't matter. I mainly buy books though, and usually look second hand.

For actual loans, we got one to buy a car (second hand, not new. Old car completely died), found it was cheaper to borrow a bit more so had our front and back doors replaced which desperately needed doing. We may need loans in the future if work needs doing to the house as we're not in a position to save that sort of money

It's never occurred to me to get a loan for a luxury item. I generally only think of loans for the big ticket items - cars or a once-in-a-lifetime trip or something like that.

We had saved for our wedding and booked and had deposits down but then had to pay unexpectedly towards a funeral. We had no option but to take out a small loan as we weren't going to save the sum we needed by the date. That was easily doable and then a month after the wedding, OH got a health issue and unable to work. So it's been tight for a few years but I've two months left on it and a perfect credit score. I'm glad that I didn't go nuts just because I could get a wedding loan, because if I had, we'd be fucked now.

I have used Klarna a couple of times but for monthly deductions of less than €40 just to spread the cost of a big item, more for money management month to month. But you've given me an idea. I wear boots to work and I got the last pair around 2020. They are expensive but I was replacing Dunnes boots 2-3 times a year at €30 a pop so the Vimes theory is working well for me. I've been holding out for sales prices to get next winter's ones but if I find a stockist that does Klarna and also on sale, it'll help with the inital outlay of my 2024 -2028 pair!

Sorry, I dont understand. @Sandwichblock do you mean it makes no sense to take a bank loan, or no sense to be worried about taking one?

In that case I think you are wrong I’m afraid. I think there are numerous ways of getting into trouble spending money that you can’t afford, saying loans are bad- but credit and klarna are fine is just succumbing to clever marketing.

Im very much in the save for something you want camp- but if you do want to borrow money then a planned loan from a regulated bank may well be a better option than some of the other schemes that are out there

I suppose if something is only fleetingly available, the potential buyer needs to look at the lifetime cost and decide if they are willing to pay the full price, interest, and take the risk. So if it is a 5k item, realize they will really end up spending 6k* and taking on a bit of risk. I struggle to imagine what non-necessity would be worth paying extra.

*not doing any math to get to that number, just wildly guessing that a person who won’t save up also won’t pay it off quickly so will end up with a fair amount in interest charges.

I still think it's a terrible idea - you never know when your boiler or roof will pack in, then suddenly you have debt over a frivolous item to contend with as well as the new boiler/roof repairs and you're likely to then resent having bought that handbag/jewellery etc.

sutely this only applies if you don’t have enough savings to cover things like a boiler or roof repair. Many many people can do both.

*I used to avoid credit but then found sometimes having no credit can work against you.
This is a point I have tried to make several times.
I have no loans,no mortgage and no balance on my credit cards. My credit score is excellent but still short of top marks. To improve it my bank suggests using my cards or taking a loan out.

My friend was the same and came into problems when he tried to get a mortgage
There was no credit history so he was an unknown risk.
This is why I say debit is just a money management tool.

All these posts about taking loans out for various things as being pathetic and if you have to pay I'm installments you probably can't afford it are just plain daft.
Why would you use savings to buy something when you can pay in installments at a lower interest rate than your money is making.

I agree though that it is important not to rely on loans for your day to day upgraded lifestyle. Now that is mad.

Yes, I made this point too. Now I have loan history.

Smart use of credit is doing things like putting things on a credit card and paying it off in full at the end of the month.

Keeping your money in an interest bearing account and getting a lower interest loan that you could pay off in full, but you don’t.

you can build a great credit reputation and banks will offer you more and more credit. That doesn’t mean you should just use it. You keep your good rating and keep those great low interest rates available whenever you need them by being strategic.

all entirely different than just buying something because you want it and will manage to pay for it eventually.

the banking system is set to the advantage of people who either have so much money they don’t care to manage it wisely or people who have just enough money and are very careful with it. Banks give them the best accounts, the best loans, even the best service. All of which makes life cheaper.

I used to think it was always a bad idea, now I'm not so sure.
I've no loans at all, no mortgage, and reasonably substantial assets which generate a decent income. I quite fancy a very luxury, very substantial, appreciating 'toy'.

I could a) wait until I have saved up ( several more years ) or I could b) take a loan out secured on one of my investments, buy the toy, pay interest only from the income of my investments and sell the toy after a few years of fun to clear the loan. The difference between interest earned and spent is just the cost of having fun now! ( I'm 53 and who's getting any younger?) If the toy sells for a bit less than I paid for it, I'll just pay the difference at the end., but it could sell for more.

Suddenly I don't see loans for luxuries quite so black and white anymore..

I have adhd and if i try and save for something, i never seem to manage it - the money just trickles away on other stuff because try as i might, i can't see it as "spoken for". I'm also not good at waiting. I've learnt to really think about whether i want/need something and if i still want it after thinking about it for x amount of time I'll get it.

So now i get things on credit at a set amount per month, i get to use the thing now and because the debt HAS to be repaid, i make sure it's paid on time. I don't commit to credit unless id be happy to have saved the same amount. Works for me! I don't buy expensive clothes, watches or handbags but i try not to judge people who do.

Also id never have the money to buy a car out right. If i don't get a loan, I'd have no car - as above, i find it impossible to save but not impossible to pay off debt.

Well, they will be taking a loan out because they want the item now, and not save up for it.

And like a few PP said, you need to have loans/credit cards to get any sort of credit rating anyway.

Anyway, it is up to other people how they spend/save/borrow, and is not something I am concerned with.

We save but still borrow a few thousand from credit union every year to put towards our big summer holiday (save up through the year for smaller ones) we just add in a bit extra for the loan every week on top of our usual CU savings and have it paid back by the next holiday and repeat.
I suppose a holiday is indeed a luxury and a loan is debt, but it doesn't feel like that.
@Notimeforaname what would you do if you lost your jobs and had the credit union to pay? What if you got injured and couldn't work? What if you need a new car to get to work? What if you have to take unpaid leave to tend a sick child? What contingency plan do you have to pay the debt if your income fails?

This is where if one thing falls down, it brings the rest.

Would it not be worth saving a little more each week, spending a little less on holiday or whatever, or, even forgoing a holiday one year and doing as many for free things as you can instead so when holiday time comes around next year you can pay for it from savings?

@Xenobitch you don't necessarily need credit cards/loans for a good rating. Mine is fine, I have no mortgage as I'm old enough to be paid off, no loans, no overdraft and no credit card.

Anyway, it is up to other people how they spend/save/borrow, and is not something I am concerned with

This is the crux of it for me. I have no opinion on how other people choose to organise their finances, as long as I’m not expected to bail anyone out!

Yes, I made this point too. Now I have loan history
I was thinking of trying to rebuild a loan history. Trouble is, there is nothing I want!

Same, I was worried when applying for a mortgage as I had no credit or loan history (and had spent previous 5 years abroad), but somehow still had a near perfect score when I got checked (I did keep a UK address, phone contract, and bank account going which played in my favour though).

I think the idea of building up a credit history is a bit overegged, although I suppose for certain loans/credit they will want to see a history of payments being made on time (but I'm not likely to ever take out such a loan in any case)

The credit score thing is over egged. The actual score is irrelevant to lenders, and your score is entirely different between different agencies, depending on the criteria they use. Usually what a lender is interested in is affordability… do you have the means to pay back the amount borrowed, and have you ever defaulted on payments previously.

(I work in finance, by the way).