When you want to purchase any property, you are always given two options: Paying in full with cash or paying with a loan. While both options seem quite simple to understand, there are arguments in support for both methods of payment. In this article, we will go over the pros and cons of both options to help you make a decision when you buy property in the future.
Buying With Cash
While this method sounds to be much better than paying with a loan, there are also risks involved with paying in only cash. After purchasing the property with cash, you may find problems or renovation needs later on. It may be difficult to acquire a home equity loan or other form of loan to fund this. Furthermore, no one can be sure of the future, meaning your credit score may be subject to change with time, leaving you ineligible to receive a loan. Additionally, if it is a bit of stretch to pay fully in cash, you may potentially come across financial trouble in the future that requires ample cash.
In short, paying with cash can have many benefits. However, if you choose to pay in cash, make sure you have the flexibility to do so. Planning ahead for the future is critical when using a large sum of money.
Paying With a Loan
Paying with a loan can ease the burden of finances when purchasing a house. Saving enough cash for an upfront payment can be difficult, whereas a loan can allow you to still have enough money in your daily life as well as buy property. Loans can be a safer option, as the risks associated with paying entirely in cash are reduced. Moreover, there is an excellent case made for leveraging in which you can make back more than you put down for an investment property paid with a loan. In other words, if the property value increases in a few years, you can pay off the loan, interest, and still have profit without having to put down a large sum in the first place. However, paying with loans does come with some cons. You will accumulate interest over time, meaning you will be paying more for the property than what you would have paid with cash up front. Going through the process of actually getting a loan may be tough as well, as it requires a good credit score, potential assets, and other factors. Not everyone may qualify for a loan, especially as the amount one wishes to borrow increases. Monthly payments may also be a burden, especially if financial problems arise.
Overall, a loan can be a safe option, providing flexibility and security. However, accumulated interest can be a heavy cost in the long run.
