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Should I Avoid Borrowing Money?

There are many people that would advise others never to borrow money. There is even an old-fashioned phrase ‘never a borrower or a lender be’. However, there are those that would argue that loans are extremely useful and we should all use them. Sensibly it is probably wisest to take a stance somewhere in the middle, but it is worth considering the advantages and disadvantages of loans so that you can make the right decision for you.

Advantages of Loans

As much as we are often told that loans are a bad thing, they do have many advantages. They can help us out of tight emergencies where we might otherwise have had to forgo a basic need and they can help us to better ourselves as well. Many focus on the cost of the loans and the stress that some people get when they owe money but they can really help.

Many people use loans to improve themselves. For example, many young people will borrow the money to go university which means that they have a lot more options when it comes to a career. They should be able to get a better paid job and this will mean that they will be better off in the future financially even though they have a loan to repay. The same should apply to any other sort of loan which helps with career development. A mortgage is similar in that a person will be able to be better off as a result. By buying your own home during your working career it means that you will be able to live rent free through your retirement. You will also have a house that you will be able to pass on to your children once you no longer need it. Loans can also be used to help out businesses also that they can expand and potentially make more profit; more quickly than if they did not borrow the money.

Loans are also used by people to buy things that they would not normally be able to afford right away. So, they can be used to spread the payment. People will use them for all sorts of things such as cars, white goods and home renovations. They are also used by some people to help them to make ends meet if they find that their salary is not enough to cover the cost of everything that they want or need to buy.

Disadvantages of Loans

Like all things, we have to pay for loans and some are more costly than others. The amount that you pay will depend on the type of loan and the lenders and some will offer much better value for money than others. This means that you should be careful about which you use and make sure that you feel you are getting good value for money from the option that you end up choosing.

One of the main problems that people face with loans is when they struggle to cover the repayments or delay repaying them for a long time so that the costs really add up. This is something that can be avoided though. If you make sure that you fully investigate the amount that you are expected to repay before you take out the loan and make sure that you will be able to manage the repayments, then you should find that you will be able to manage. However, if you take on a loan quickly and do not think about whether it will be affordable for you, then you can get yourself into difficulty.

Loans can also make the items you are buying with them the equivalent of being more expensive. For example, if you buy a car with a loan and the interest is 5% per year and you pay it off over 5 years, you will be paying 5% a year on what you owe more for the car than the ticket price. This is something that people do not often calculate and they may not have been prepared to pay that much for the car had they actually worked out what they have ended up paying for it. You should be able to work out or ask the lender how much you will be paying in total for the loan and that will allow you to decide whether you think that it is worth it.

Some people find the whole idea of owing money stressful and will have a negative impact on their health. This can be a shame because these could be people that could be positively helped by borrowing. However, the very best way to take the stress out of borrowing is to make sure that you can afford the repayments with ease. Then you should have no reason to worry at all.

Are Premium Bonds a Good Place to Put Your Money?

Many people are looking for worthwhile places to put their money these days. We may want to put it somewhere we can trust as the stock market may look too risky for us and we might want to try to get a decent return as interest rates are so low and it can even sometimes be better to put money in savings than use it to repay loans. However, that can leave the choice rather small. One option that could be looked at is premium bonds.

What are Premium Bonds?

Premium Bonds are a system of saving money set up by the UK government. They offer the opportunity for anyone to be able to buy bonds of £1 each. These bonds can be bought in bundles of 25 and you buy up to £50,000 worth at the moment. The maximum holding has changed over the years as has the minimum spend. The bonds do not pay any interest but each month every single £1 bond is put into a prize draw once the money has been in the account for at least a month. There are prizes from £25 to £1m and if one of your bonds is picked you win a prize. There are only two large prizes and most of the prizes ate for the lowest account. The odds of winning vary depending on how many people hold bonds and how many prizes are offered. The prizes change regularly as the prize fund is a percentage of the money help by savers and so will change depending on whether more people are buying or selling their bonds. The prizes can either be transferred directly to a bank account of your choice, reinvested or paid by cheque, although for under 16’s the prize can either be reinvested or a cheque is sent to the parent that is named on their account.

Advantages of Premium Bonds

One of the big appeals of premium bonds is that there is no tax on winnings. This is because it is conducted almost like a lottery and gambling winnings are not taxed. This means that they can have advantages over other savings accounts as these are normally taxed. However, recently the government has changed the rules with regards to taxing savings and low rate tax payers do not have to pay tax on income form savings until they are over £1,000, although this threshold is lower for higher rate earners.

Another advantage is the big gains to be made. Normally if you have £50,000 or less in a savings account you would make a small amount of interest perhaps these days from less than one percent to five, depending on how long you were prepared to tie the money up for. With premium bonds you have the potential to receive a huge amount of money and you can draw the money out immediately when you need it.

As Premium Bonds are issued by the UK government, they are arguably safe. There are some people that will not trust the government with their money, but it is usually safe to assume that any UK government would keep money safe.

Disadvantages of Premium Bonds

One of the main problems with premium bonds is that there is no guarantee that you will get any prizes. This means that you could have bonds for your whole life and win nothing at all. Each bond does have the same odds of winning, but what that means is that because there are so many bonds entered in each monthly draw, you will need to have a big holding to have good odds of winning something. If you look at the big winners on the Premium Bonds website you will see that they mainly tend to have large holdings, although sometimes someone with a very small amount of bonds will win. You may also have heard people complaining that they have had a bond their whole life and never won anything. But having just one bond will mean they would have tiny odds of winning. This means that those with higher holdings are far more likely to win and so unless you have a lot of money to buy Premium Bonds you may not think it is worth it.

The potential average return on Premium Bonds tends to be quite low. You will find that if you put your money into a fixed rate bond (which governments, banks and building societies offer) you are likely to get a bigger return than this. However, you could get more from Premium Bonds but you could also get less. Really it can be about whether you think that it is worth the gamble. You may get nothing back at all, you may get a huge prize or you may get something akin to a reasonable return. You will not know and the only thing that you can do to increase your chance sis to buy a bigger amount of bonds.