Is it Wise to Spend Money When Interest Rates are low?

Is it Wise to Spend Money When Interest Rates are low?

It can be confusing knowing when is the best time to spend our money or when to make big and expensive purchases. Sometimes we get no choice as we need to buy something but if we do have some time that we can wait then it can be hard to know when might be the best time to buy. It can be worth thinking about how you are going to buy the item and this will help you to decide when might be a good time.

Purchasing with savings
If you have some savings and you are wondering whether to spend them, then interest rates could be quite relevant. If interest rates are high, then you can make a lot of money by leaving your money in a savings account. You will be getting a return on that money each month or year and it could be worth keeping it in the savings account so that you can gain more money on it. If the interest rate is low then you are not gaining much by keeping it in the savings account. You might be better off spending the money and enjoying it rather than just earning a very small amount of interest on it. It is wise to keep some money for emergencies but you may not need as much as you have saved. So low interest rates could encourage you to spend your savings as they are not really doing much for you in the bank.

Purchasing with a loan
If interest rates are low then borrowing is much cheaper. This means that getting a loan will be cheaper than if interest rates are high. When they are high it could be wise to wait for them to come down a bit before you borrow money and then it will be cheaper. You should still be careful though. Make sure that you know how much you will be expected to repay each month and think about whether you will be able to afford it. If you are not sure then look at your bank statements and see how much money you have left each month and whether this would be enough to cover the repayments. If not then look at what you are buying and whether you can cut down in order to afford it. It would be wise to write yourself out a budget if this is the case.

Of course, interest rates can go up and down and so unless you get a fixed rate loan or a fixed rate savings account, the amount that you are paying in interest could vary. So, there is always an element of the unknown in the equation where you know what rates are currently but you do not know what they will be in the future. You may be able to make a guess based on predictions or on trends but it is not a perfect science. You may feel that if they are low and have been for a while then they are more likely to go up than down and vice versa. There are quite a few ways that you can try to predict what might happen which could be useful. However, it is wise to be prepared for an unpredicted change in rates and think about what you might do in this situation. It is a good idea to make sure that you only take on a loan, for example, if you know that you will be able to easily make the repayments. Then if rates go up and payments get dearer you will still be able to afford them. It is really good to make sure of this as you never know what might happen and you will then be prepared and you will not need to worry. Also, if you have plenty of money available to make the repayments it means if prices go up you will still be able to afford things. Even if you a have a fixed rate loan and therefore your repayments will not change, it is still worth making sure you will easily be able to repay them so that you have some extra money available in case you need it.

You also want to make sure that you think about whether this is the right time for your personally to get a loan. Think about your job security, for example and whether your income is likely to remain the same for the duration of the loan. Consider your spending as well and whether this might change significantly too. It is a good idea to think about whether there might be any family changes, work changes or whether you might want to move house when you are imagining the future. The longer the term of the loan, the more important it is to think about what might happen in the future.

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