Introduction
If you are having financial difficulties and you can’t figure out which solution is better: to use your hard collected savings or to loan money, then you should consider to loan money using your savings. You can do this by using your retirement fund or by offering the savings account as a warranty or collateral for the loan.
In case you want to use your savings and loan money for obtaining profit, not for financing your needs you can use your retirement fund and savings account to buy bonds.
Anyway, whether you are in the first situation or in the second one, weigh well the advantages and disadvantages of your decision and think of the following sides of this issue.
Step 1
On one hand, loaning instead of using the savings is beneficial for your savings plan or deposit because you don’t have to interrupt it. As banks can wait to charge with an extra fee or commission, you will surely be sanctioned if you tell the bank clerk to release some cash from deposit and to put them on the debit card. Moreover, if you have deposited the money for a longer period, you can lose the interest related to that time frame if you pull out money before the maturity of the deposit. So, from this point of view, perhaps it is better to loan money.
Step 2
On the other hand, if you compare the interest involved by loans and savings, you will notice that the one you receive for the savings is smaller than the one you have to pay for the loan. So for the short term it might seem like a good solution to loan instead of compromising your savings, but for the long term you will close your balance in red for sure.
Step 3
In case you are not having financial difficulties and you want to use your savings to borrow money to someone in order to obtain a profit, you should consider investing in bonds. A bond is a financial instrument which companies or governments use to obtain cash for various projects. If you buy a bond you are loaning your money to the one who issues that bond for a determined period of time. After that period ends you will receive your savings back together with a fixed interest.
Step 4
So, if you are thinking to use your income and savings to loan money, here is what you should do. Firstly, make some researches to find out what companies are issuing bonds and what is the interest offered. Also find out what is the maturity of bonds and how often is the interest paid. If you don’t want to loan your savings to a company close to bankruptcy check its reputation. Compare this information with your needs and decide on a company.
Step 5
Go to your broker and tell him to buy those bonds. In case you are buying government bonds, go to the Treasury department of the government and purchase them yourselves.
Tips
All this said, whether you find yourselves in the first situation or the second situation, the decision of loaning must be well founded because otherwise it will affect your income and savings.
Sources and Citations
www.wikipedia.com
