Often when you borrow money you get an option when it comes to the amortization rate. It can be anything from amortizing a loan very quickly or not paying anything at all on the loan itself, you also have the option to choose to invest money. How to reason on this issue depends on a number of different factors and these we will try to look a little closer at here.
The first thing to say is that from a perspective where you only look at how much the loan will cost in total is cheaper to pay off as quickly as possible. Each amortization will make you pay interest on a slightly smaller sum. In the beginning, this may only make a few kronor less in interest costs per month, but it is a bit low and over time it will increase.
Your own personality
This is a factor that must be taken into account. For example, if you are a person who does not like to take risks, it is much better to try to pay off debt as quickly as possible. However, if you want to take some risks, it is a good alternative to choose to invest money instead. If you look at it from a historical perspective, the stock exchange has yielded an approximately 10% return per year, which is clearly more than most loans have in interest. However, you can never be sure of getting any return on these invested money. If you have a loan that you repay on, you know that it is in the form of investment that has a secure return that is as high as the interest rate.
What does the world economy look like?
There are always opportunities for good investments, no matter what the world economy looks like. However, it is more difficult to do good if the situation is troubled. There is also a greater risk of, for example, getting rid of their job. For this reason, it is good to amortise properly if it goes if there is a bad period or such a forecast coming.
Just don’t forget to create a buffer that can be used for problems. The money saved for this budget should be safely deposited.
How your own finances look is, of course, a deciding factor for those who are considering whether to repay or not. Here you can have as a basic idea that if you have a good economy and a safe job, it is better place to invest money. You can then probably not succeed perfectly with your investments.
If you have an economy that instead just goes together every month, it is instead a good idea to try to amortize as much as possible to try to bring down the total costs. It is simply better in this camp to take a slightly lower but safe return.
Interest on the loan
In the sections above, we have mostly talked from a perspective where you have an interest rate that is quite low. This is most likely for example a mortgage loan. But it is far from all loans that have such low interest rates as mortgages. If you have a loan with an interest rate of over 7-8%, you should try to repay these debts as soon as possible. There is too little difference in the average return on the stock exchange for it to be worth the risk.
If you have one or more high-interest loans, you should also try to collect the loans, something that you should try to look over. For example, a large private loan is usually much cheaper than several smaller loans.
Your own feeling
We have always talked about everything from an economic perspective but this is not at all everything but your own feeling is important to take into account as well. Does it feel better to get rid of your debt quickly or are you anxious to try to grow your saved money. The answer to this question may be all you need.