The age-old question: should you save or borrow? Is it better to put money aside for several months before making a larger purchase, or buy it now and pay for it in instalments later? Giving a universal answer is about as difficult as deciding whether pineapple belongs on pizza. For some purchases, saving is clearly the smarter option, while in other cases a loan or instalment plan can be a perfectly practical solution.

The most important questions to ask yourself are: what are you buying, how quickly do you need it, and how much will the loan actually cost you?

Imagine two friends, Marta and Kertu. Both want to buy a new kitchen costing €2,400. Marta opens a savings account, puts €200 into it every month and... waits a year until she has enough money for the kitchen. In the meantime, she also spends money eating out. Kertu, on the other hand, takes out a consumer loan and is already cooking meals for the whole family on her new stove a couple of weeks later, saving money on expensive takeaway food. A year later, Kertu has paid a considerable extra sum in interest on the loan, while Marta discovers when she finally goes to buy the kitchen that its price has increased by €100 and that her food expenses have also been significantly higher over the year.

So, who made the better choice? There is no single clear answer, but let's take a broader look at the issue below.

When Is Saving the Right Choice?

The wisdom passed down by older generations says: “Don't buy what you can't afford.” And, broadly speaking, that's good advice: when you save up, you only pay the price of the item itself, with no additional interest costs.

The simple rule is that if the purchase is not urgent and you can postpone it without significant losses in terms of convenience or time, saving is usually the cheapest option. When you save up in advance, you don't pay interest or loan-related fees, and once you've made the purchase, you don't have to spend the following months worrying about how to pay it off.

For example, if you've decided to buy a new €1,200 television even though your old one works perfectly well, saving is definitely the more sensible choice: if you put €200 aside every month, you'll have the required amount after six months. Until then, you can continue watching your old TV.

Save up before buying when:

• the purchase is not essential;

• you can wait a few months;

• you already have a functioning alternative;

• the total cost of a loan or instalment plan would make the purchase significantly more expensive;

• making the purchase immediately does not provide you with an immediate financial or practical benefit.

Saving works particularly well for purchases such as a new phone, television, furniture, a holiday or anything else you don't actually need right now.

Saving also has a psychological advantage: when you've put the money together yourself, you often appreciate the purchase more. Research into consumer behaviour repeatedly shows that things people have had to work towards tend to provide greater satisfaction than things that simply “came” to them.

When Might a Loan Be the More Sensible Solution?

Here we come to an important nuance that “never borrow” advice often overlooks: the time value of money and opportunity cost. When making a decision, it's not always useful to measure value purely in money; time and convenience matter too. The €100 you've saved may also not have the same purchasing power in the future as it does today.

Imagine Priit, who has a 15-year-old car that simply refuses to start one morning. He has a job he needs to drive to every day, and public transport doesn't get him there. Priit can either:

• save up for a new car for three years while taking a taxi or rental car to work every day in the meantime, which could ultimately cost much more than the loan interest, or

• take out a lease or car loan and continue commuting to work in his own car.

In this situation, a loan isn't a luxury but a tool that helps him maintain his income.

The same principle applies to small businesses: if a bakery owner can use a business loan to buy an oven that doubles production capacity and the additional income allows them to repay the loan within a year, the loan has been a clear investment rather than an expense.

Real-Life Situations – What Should You Do?

1. A new phone because you simply like it.

Your old phone works, but the battery is a little tired and it lacks the latest features. This isn't an urgent need, so the recommendation would be to save up. Three or four months of patience and the new phone is yours without any additional costs.

 

2. The washing machine breaks down and you have four children.

A new washing machine is a necessity, not a want. Taking your laundry to a laundromat three times a week costs more in terms of time, money and convenience than a small instalment plan. An instalment plan or consumer loan can therefore be perfectly reasonable, especially if the interest rate is low (many shops offer 0% interest instalment plans as promotions – but always read the small print!).

 

3. Your dream wedding.

Wedding loans are becoming increasingly common, but the statistics tell a harsh story: many young couples spend years paying off a party that lasted just one evening. Save up or cut the budget. Your marriage doesn't need an Instagram-worthy stage to have a happy beginning.

 

4. A business laptop that earns you money every month.

If you're a freelance designer and your old computer takes five minutes to load files while a new one would do it in two seconds – and the time saved means more clients and orders – then a loan can be an investment in yourself. A loan can be justified here, provided the repayments comfortably fit your budget.

 

5. “All my friends are going to the Canary Islands, I want to go too.”

Paying for a holiday with a credit card or holiday loan and spending the entire following year paying it back can mean enjoying your holiday today and stressing about it all year. However, if you know that your busy schedule won't allow you to take a long break next year and all your friends are travelling now, the emotional benefit may outweigh the later additional costs. The recommendation is to save as much as possible for the trip and, if necessary, borrow only the amount you're short of.

The Golden Rule for Deciding Whether to Take a Loan

Before signing a loan agreement, ask yourself three questions:

1. Is this a need or a want? Needs (work equipment, an emergency at home) may justify taking action quickly. Wants (a new phone, fashionable furniture) can usually wait.

2. Will the purchase generate income or save more money in the future than the loan will cost? If yes, the loan may be reasonable. If not, it's probably better to save.

3. How much will the interest actually cost me? A small, short-term instalment plan (for example, a three-month plan with 0% interest) is a very different proposition from a high-interest consumer loan taken out over several years.

Quick Guide: Save or Borrow?

 

The Best Option May Actually Be a Combination

Life rarely offers black-and-white solutions.

If you need €1,500 but have €900 in savings, that doesn't automatically mean you need to borrow the entire €1,500. Another possible solution could be: €700 from your savings, leaving yourself a small buffer, + €800 through financing.

This means borrowing less and potentially paying less in total financing costs. At the same time, using up all your savings may not be a good idea if it would leave you with no financial buffer after the purchase.

So before making a decision, it's worth looking at the bigger picture.

FAQ: Saving or Borrowing?

Is saving always better than taking out a loan?

Not always. If the purchase isn't urgent, saving is generally cheaper because you don't have to pay interest or other loan-related costs. If it is a necessary and unexpected expense that cannot be postponed, a loan or instalment plan may be a reasonable solution.

When should I save up for a purchase?

Saving is particularly worthwhile when the purchase isn't urgent and you can afford to postpone it. For example, saving for a new phone, television, furniture or holiday allows you to avoid borrowing costs and means you won't have a monthly loan payment hanging over you after the purchase.

When can taking out a loan make sense?

A loan may be worth considering when you need to make a necessary purchase or cover a larger unexpected expense but don't have enough savings. For example, a loan can be one option for essential car repairs, a broken household appliance or another unexpected expense. Before taking out a loan, make sure the monthly payment fits your budget and that you understand the total amount you will have to repay.

Should I always use up my savings before taking out a loan?

Not necessarily. Savings are also a financial buffer for unexpected expenses. If you use all your savings to make a major purchase and are then left with no reserves at all, the next unexpected expense may force you to look for an even more expensive solution. It may make sense to use part of your savings and finance the remaining amount if necessary.

Which is better: a consumer loan or an instalment plan?

It depends on the specific purchase and the terms of the offer. An instalment plan is usually linked to a specific purchase, while a consumer loan can be used to cover different expenses. With both, it's worth comparing the interest rate, contract fees, annual percentage rate (APR) and total amount repayable.

Is it worth taking out a loan for a holiday?

If the holiday is planned in advance, saving for it is generally the better option. That way, you won't still be making payments for your holiday months or even years after returning home. However, if an unexpected necessary expense arises during the trip, financing can be one possible solution – provided you can afford the resulting financial obligation.

Is taking out a loan a bad financial decision?

A loan is not inherently a good or bad financial decision. What matters is what it is used for, how much it costs and whether the borrower can comfortably make the agreed repayments. A well-planned loan taken out for a necessary expense can be a reasonable solution. However, continuously financing impulse purchases with borrowed money can lead to excessive financial obligations.

Should I use my savings or take out a loan when an unexpected expense arises?

First, consider how much savings you have and how much of a buffer you would have left after using them. If you can cover the necessary expense while still keeping a sufficient financial reserve, using your savings may be cheaper than taking out a loan. If using all your savings would leave you with no financial buffer at all, it may make sense to consider a combination of savings and financing.

Is it worth taking out a loan for a small purchase?

In general, for a small and non-essential purchase, it is worth considering saving first. If loan-related fees make up a significant proportion of the purchase price, financing can make a small purchase unnecessarily expensive. However, the decision always depends on the specific terms of the offer.

What should I look at before taking out a loan or instalment plan?

Don't look only at the monthly payment. Check at least:

• the interest rate;

• the annual percentage rate (APR);

• contract fees and other charges;

• the loan term;

• the total amount repayable;

• whether the monthly payment fits comfortably into your regular budget.

The total amount repayable is the clearest indicator of how much the purchase or necessary expense will actually cost you when financed.

Could I use a credit line instead of a loan?

A credit line and a consumer loan are different forms of financing. With a credit line, you can use money as needed within your credit limit, whereas with a consumer loan you generally receive one fixed amount. Which option is more suitable depends on what you need the money for and the terms of the specific product.

What is the simplest rule: save or borrow?

If you can wait, saving is generally the better option. If you have a necessary and unexpected expense that cannot be postponed, a loan or instalment plan may be one possible solution. In either case, it's worth calculating what the decision will mean for your budget before making a commitment.