Pay all at once or finance. How to choose the best option

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Nowadays, it is essential to understand the differences between paying in cash and applying for financing. These two payment methods are crucial in any commercial transaction, however simple it may be, and each of them has its own implications and advantages. Applying for a loan or financing involves paying for the product or service some time after it has been acquired. In this case, financing involves applying for a loan to pay for the good or service in installments over time, and depending on the chosen method, it may involve paying interest.

But financing also has certain advantages: the main advantage is that it enables you to acquire goods or services without immediately having all the money required. This can be especially useful in large purchases, such as a house or car, and it enables us to maintain our liquidity for other expenses or investments. However, financing also has its disadvantages: interest may have to be paid, which would increase the product's cost. In addition, a debt is acquired that must be managed over the agreed period of time, which can limit our borrowing capacity for other things in the future.

On the other hand, paying in cash means paying the total price of a good or service at the time of the purchase. This modality has the advantage of not having to assume future debts or pay any interest; as a result, the total cost of the product is lower, and it leads to less financial stress in the long term. It also has certain disadvantages. The main disadvantage is that you need to have all the money available immediately, which is not always possible. It can also significantly reduce our savings or liquidity for other expenses or emergencies.

Having a clear idea of these two payment methods is essential for making correct financial decisions. We should not forget that before making the decision of paying in cash or applying for financing, we must assess our personal financial situation: income, expenses and savings. We must consider the total cost of financing versus paying in cash, think about our long-term payment capacity and evaluate the urgency of the purchase and other financial priorities.

We must neither forget about the interest involved when applying for financing or a loan, which is basically the cost of receiving the borrowed amount. It is expressed as a percentage of the total amount of the loan. For example, if we apply for a loan of 1,000 euros at an interest rate of 10% per year, after one year we will have to pay 1,100 euros. Another important concept is the Annual Percentage Rate or APR. The APR reflects the total cost of the loan, including not only interest, but also fees and other associated expenses. Therefore, the APR is usually higher than the nominal interest rate, and it actually indicates how much the loan will cost us.

It is also very important to understand the concept of borrowing capacity. This is the percentage of our income that we can allocate safely to the payment of debts. Financial experts generally recommend not exceeding 35-40% of our monthly income. For example, if someone earns 2,000 euros a month, they should not allocate more than 700-800 euros to the payment of debts, including their mortgage, personal loans, etc.

The decision to pay in cash or finance a purchase must be based on several factors. First, we must evaluate our personal financial situation: income, expenses and savings. Making the decision should not compromise emergency savings in order to comfortably face the monthly payments. The total cost of the financing versus paying in cash must also be considered. Sometimes, interest can make the product end up costing much more than it would by paying in cash.

There are exceptions to this, as some banks, such as BBVA, allow you to split a payment or purchase made with the debit card (in its Aqua line, with a fee). Therefore, we must look for those with the "Installments available" tag in the account transactions. In this case, we first pay for the purchase and, once it has been split, the amount is paid into the account. The Aqua credit card is also available in exceptions, and it allows you to pay in installments of up to 3 months without interest.

As a general recommendation, we must maintain an emergency fund of between 3 and 6 months for unforeseen expenses, which prevents us from having to take on a debt in the event of an emergency. Last, but not least, it is essential to carefully read the terms and conditions of any financial agreement before signing.

The best option between paying in cash or financing will depend on the personal and financial situation of each individual. What is most important is to make informed decisions, considering both the short and long term, and not compromise our economic stability. It is also important to remember that financial education is a continuous process. The more we know about how our finances work, the better decisions we can make.