Business Class

Think Before You Borrow

There are two main reasons why someone should not borrow money in order to purchase an item that depreciates in value (a consumer good, not a producer good). The first reason is that the interest on these types of loans can be very high. On top of having to pay the principal, one is faced with a mounting debt due to interest. The other reason why one shouldn’t borrow to buy consumer goods, like cars, clothes, furniture, etc., is because those sorts of items lose their value quickly. These items are not a tool or production good, like a hammer, machine, stethoscope, etc.,that keep some of their value. Consumer goods do not usually have a profitable resale value. Therefore the best way to purchase consumer goods is to pay cash. It is not usually worth borrowing money to buy these goods. In the long run, one will benefit by avoiding the debt and high interest rates that come along with borrowing money in order to buy consumer goods.

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