8 years ago investing82Jake

I’ve Never Used a Consumer Credit In My Life

This is not a title to attract your attention. It’s a confession.

Actually I remember borrowing money just once when I was a student. And it wasn’t because I really needed it: I just wanted to see what is it to borrow money, because everyone else was doing it. So far I was only lending to friends.

Consumer Credit
Photo by [s e l v i n] at Flickr

I haven’t been a rich kid, neither I had any ideas of money management. I just never think about borrowing as an option. I know if I don’t have the money for something, I just can’t afford it and that’s all.

Now we may finally break this rule when the time to finish our new house come, but I’ll try to avoid it again. I just can’t see it as something natural. I think getting a consumer credit is just a wrong thing to do.

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Every time when someone uses a consumer credit, someone is screwed.

It’s either the lender or the borrower. If you don’t pay your loan, it’s the lender who’s screwed. But since most loans are given by banks or other institutions who take very good care to receive their money mack, it’s usually the borrower who’s been screwed.

You may think it’s very cool to buy something and enjoy it even if you don’t have the money. But why don’t you look at the other side of it: an year or more later you are still paying money for something you no longer enjoy that much, something that is outdated or out of fashion. And you are paying more than its real price.

For example if you buy a laptop with a 1 year loan you will probably pay 110% – 115% of its price. But your loss is a lot more than these 10% – 15%. You get screwed twice because six months later you are still paying for this laptop, but its price is down 30%. Doesn’t that make you feel like an idiot?

It’s even worse if you buy a car with 10 years loan or leasing. Nine years after the purchase your car looks like crap, it costs 60% less and is totally not cool, but you are still paying for it. Good boy, keep feeding your lenders.

The big mistake…

… when getting a consumer loan is that you think you are buying something that you deserve to have. Sorry to break your world, but if you don’t have the money for it, that simply means you can’t afford it. Whether you deserve it or not is irrelevant, because money has nothing to do with merits or fairness.

If you can’t afford some item now, you’d better look for other item that you can afford or see how you can make enough money to afford it (if owning that item is really that important for you). Let the morons feel important with their luxury cars, laptops and cell phones bought on leasing and buy only what you can afford.

Trying to use more wealth than you have now costs you more and more in the future.

The Business Loans

They are completely different matter. Getting a loan for business or investment is often a win-win situation, instead of win-lose or lose-win (sometimes even lose-lose) situation that you have with consumer credits. A business loan can help you grow in a way you could never grow without it. It helps both you and your lender make good return on money that could otherwise stay and do nothing.

Somehow most brainwashed people see consumer credits as something normal, but start shivering in their pants when they hear about business loans. Can you see how dumb that is? Using loan to buy cell phone, car, laptop or clothes can in no way be a long term gain – at best case you’ll happily use the stuff you bough and not feel bad for having to pay for it later. But even in this best case the money is completely gone. On the other hand, even the riskiest business or investment loan has some chance to succeed. If it succeed, you’ll probably have your money returned back many times. If it fails, the money will be gone.

So essentially a consumer loan is the same as a business loan used for a failed venture. How could you think the first was in some way better than the second? *grin*

P.S. I don’t entirely deny consumer credits – if you need a medical operation for example, that could be the only choice to stay alive or live normally. But to get a loan for buying the latest iMac? Uh!?

Jake