Why do people borrow money?

[Bruce Wayne]

I've been thinking about this quite a bit recently. Obviously a mortgage is slightly different, firstly because it is unlikely anyone can buy a house without borrowing, and secondly because houses do seem to rise in value.

However most things aren't like that. Buying a car for instance will be a depreciating investment. I can understand a business borrowing money because they're using that to try and increase earnings, thus affording both the loan + the interest payments with a bit left over as profit.

Most individuals are on relatively fixed incomes though so borrowing money is unlikely to see income rise, unless perhaps it is invested in training, so borrowing is going to leave you considerably worse off than if you had been patient and bought things with cash.

Am I missing something?

 

[little curly alan ball]

I've been thinking about this quite a bit recently. Obviously a mortgage is slightly different, firstly because it is unlikely anyone can buy a house without borrowing, and secondly because houses do seem to rise in value.

However most things aren't like that. Buying a car for instance will be a depreciating investment. I can understand a business borrowing money because they're using that to try and increase earnings, thus affording both the loan + the interest payments with a bit left over as profit.

Most individuals are on relatively fixed incomes though so borrowing money is unlikely to see income rise, unless perhaps it is invested in training, so borrowing is going to leave you considerably worse off than if you had been patient and bought things with cash.

Am I missing something?

'Cause they are skint , poss' have a Firm of kids who ALL want Laptops / I-Pods / I - fukn - Phones , etc , ...

Reminds Caped Crusader that THIS IS - Ostensibly - a Merseyside Forum .

( A Skint ) L.C.A.B. - Out .

 

[Reidy's Bottle Of Grecian]

the must have generation, got to have everything and got to have it now. The low interest rates though have obviously made loans attractive to people as well, get it now and only pay a couple of hundred quid extra over say 3 years. It is about personal responsibility but hasn't the financial sector been given a ticking off for making so much available for people to borrow, and in effect taking advantage of the must have generation. My only 'debt' is my season ticket which is only basically cosI can pay for it over 6 months with no interest.

 

[davek]

Bruce, is this something to do with your job and you're looking for a brainstorming session here so you can stick it on your powerpoint presentation?

Next week's question: How can you get people to borrow more money and spend it on our company's 'services'?

 

[little curly alan ball]

Bruce, is this something to do with your job and you're looking for a brainstorming session here so you can stick it on your powerpoint presentation?

Next week's question: How can you get people to borrow more money and spend it on our company's 'services'?

You SOUND LIKE ME ARL FELLA , DK . Are you SURE your last initial is K ???

L.C.A.B. - Out .

 

[Bruce Wayne]

Nope, a purely personal question. I'm looking into house buying at the moment so am crunching numbers on whether it is better financially to rent or buy, and renting is coming out on top thus far. It seems to me that the financial situation is even worse for regular loans so I'm wondering why people do it when it makes such little financial sense.

 

[davek]

Nope, a purely personal question. I'm looking into house buying at the moment so am crunching numbers on whether it is better financially to rent or buy, and renting is coming out on top thus far. It seems to me that the financial situation is even worse for regular loans so I'm wondering why people do it when it makes such little financial sense.

A couple of generations of propaganda about homeownership being the holy grail; a belief that renting is throwing good money after bad.

 

[Reidy's Bottle Of Grecian]

Nope, a purely personal question. I'm looking into house buying at the moment so am crunching numbers on whether it is better financially to rent or buy, and renting is coming out on top thus far. It seems to me that the financial situation is even worse for regular loans so I'm wondering why people do it when it makes such little financial sense.

All depends on if you are paying over the odds for the property really or getting it for a song. e.g. my house would've been valued at about £125,000 realistically before the market shut down (although estate agents were putting them up for 135), now if someone was to take that mortgage on with a hefty one of say 115-120 they would be paying about a grand a month I reckon, whereas you could rent it for £550 per month. with house prices seemingly peeked then there isn't anything to be gained in the value of the property....or so it seems, the market around here seems to be starting up again and all of a sudden people seem to have panicked and taken what's there before it's gone, with 2 going for £139,000, they do say that 3 bed semis are quite good to sell though. It's a bit pot luck if you are relying on values going up to increase equity, whereas if you buy 1 with work needing to be done and can gain equity that way then it's a different matter, and if you have pound notes to pay the recession hit builders with (or polish ones) then you can make that way.

So put that in your thinktank.

my invoice will be sent forthwith.

 

[Bruce Wayne]

Some back of the envelope numbers for a mortgage of around £125k. Total repayments for that would work out at around £250k assuming interest rates remain as low as they are now. That's for a very small studio place down here.

Rental for that kind of place is typically around £600 a month, so you'd be saving around £250 a month or £75,000 over the 25 years of your mortgage. So the whole thing is relying on being able to sell your property and pocket a profit of that much.

Of course this isn't taking into account any other uses you can put the £250 a month you're saving and the returns you might get on that investment.

 

[teppic]

It's a good question Bruce.

I just bought my second house in a week(!) and I am going to rent it out. It is going to take me about 13 years until I see a profit on it.

I've been renting for years and I'd always seen it as a waste of money. Property prices are pretty stable here. Although I do know my brothers house has been very up and down in its valuation in the UK.

Owning your own home gives that security in your later years and when it's time to curl up your toes it is something you can pass on to the nearest and dearest.

 

[Bruce Wayne]

Yes, I can see buying a house as potentially a good use of borrowed money, but it baffles me why people rack up huge debts on credit cards or car loans etc.

 

[little curly alan ball]

A couple of generations of propaganda about homeownership being the holy grail; a belief that renting is throwing good money after bad.

This . Oh , an' Negative Equity , too .

Thatcher's Luciferian Legacy .

L.C.A.B. - Out .

 

[little curly alan ball]

Yes, I can see buying a house as potentially a good use of borrowed money, but it baffles me why people rack up huge debts on credit cards or car loans etc.

To cheer themselves the fuk up , Caped one .

Chav's = Hedonists . ( DO YOU NOT READ THE RED TOPS , KID ??? )

Simples !!!

L.C.A.B. - Out .

 

[Republic Of Leodensia]

Finance talk is like a foreign language to me, but from what I gather the reason is pretty simple:

They're skint and need money.

I guess they feel they can worry about the debts later when possibly they have enough to pay it off, but I guess in a capitalist society getting the money will always be a priority.

 

[Goat]

So far away from the real world some people.