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The Cost of Not Borrowing Money
The Cost of Not Borrowing Money
When faced with an unexpected expense, many people immediately rule out borrowing money. They assume that avoiding a loan is always the smartest financial decision.
Sometimes they're right.
But not always.
In many situations, choosing not to borrow can end up costing more than the loan itself. The key is understanding the true cost of both options.
Rather than asking, "Should I borrow money?" ask a better question:
"What will it cost me if I don't?"
Every Financial Decision Has a Cost
Every Financial Decision Has a Cost
Borrowing money comes with costs such as interest or fees.
But delaying or avoiding a necessary expense can also have costs, including:
Late payment fees
Utility reconnection charges
Vehicle repair costs that become more expensive
Lost wages from missing work
Credit score damage
Collection costs
Overdraft fees
Eviction-related expenses
The smartest financial decision is often the one with the lowest total cost, not simply the one that avoids borrowing.
Example: Keeping the Lights On
Example: Keeping the Lights On
Imagine you're short $150 on your electric bill.
If you don't pay:
Late fee: $30
Service disconnect fee: $50
Reconnection fee: $50
Now you're already paying $130 in penalties—and that's before considering the inconvenience of being without electricity.
If a short-term loan costs $25 to bridge the gap, the loan may actually be the less expensive option.
This doesn't mean borrowing is always the right answer. It means you should compare the total cost of each choice before deciding.
Example: Repairing Your Car
Example: Repairing Your Car
Your car needs a $500 repair.
Without it, you can't get to work.
If you delay the repair:
You may lose wages.
You may have to pay for rideshares or rental vehicles.
The mechanical problem could worsen, leading to a much larger repair bill.
In some cases, borrowing $500 today may prevent thousands of dollars in lost income or future repair costs.
Example: Avoiding Overdraft Fees
Example: Avoiding Overdraft Fees
Suppose you're $75 short when your rent payment is due.
If your payment is returned, you might face:
An overdraft fee from your bank
A returned payment fee
A late rent fee
Possible damage to your rental history
Those charges can quickly exceed the cost of a small, short-term loan.
Again, the goal isn't to encourage borrowing. It's to compare all of the costs involved.
When Borrowing May Make Sense
When Borrowing May Make Sense
Borrowing may be worth considering when it helps you avoid significantly higher costs, such as:
Preventing utility shutoffs
Paying for essential medical care
Repairing a vehicle needed for work
Avoiding eviction-related expenses
Preventing costly bank fees
Taking advantage of a limited-time opportunity that improves your financial situation
The important question is whether the loan solves a problem that would otherwise become even more expensive.
When Borrowing Usually Doesn't Make Sense
When Borrowing Usually Doesn't Make Sense
There are also situations where borrowing may create more problems than it solves.
Examples include:
Financing impulse purchases
Paying for luxury items you cannot comfortably afford
Borrowing without a realistic repayment plan
Using one loan to continuously pay another
Taking on debt for non-essential spending
In these situations, delaying the purchase or saving money first is often the better financial decision.
Ask Yourself These Five Questions
Ask Yourself These Five Questions
Before deciding whether to borrow, ask:
What happens if I don't borrow?
What will those consequences cost me?
What will the loan actually cost in dollars?
Can I comfortably repay the loan?
Is borrowing solving a temporary problem or creating a long-term one?
Answering these questions can help you make a more informed decision.
Compare the Total Costs
Compare the Total Costs
A useful way to think about borrowing is to compare two numbers:
Cost of Borrowing
vs.
Cost of Doing Nothing
Sometimes borrowing costs less.
Sometimes waiting costs less.
Sometimes the difference is surprisingly large.
Looking at both sides of the equation can help you avoid making a decision based solely on emotion or fear.
Borrow With a Plan
Borrow With a Plan
If you decide borrowing is the better option, make sure you have a clear repayment strategy before accepting the loan.
Know:
How much you're borrowing
The total amount you'll repay
When the loan will be paid off
How the payments fit into your monthly budget
Borrowing to solve a temporary cash shortage can make financial sense—but only if the repayment plan is realistic.
The Bottom Line
The Bottom Line
Borrowing money always has a cost.
But not borrowing can also have a cost—sometimes an even greater one.
The best financial decisions come from comparing the total cost of borrowing with the total cost of waiting or doing nothing.
Before making your decision, ask yourself one final question:
"Which option leaves me in the stronger financial position a month from now?"
When you evaluate both sides of the equation, you're far more likely to make a borrowing decision that supports your long-term financial health rather than simply reacting to today's challenge.
Use our True Loan Cost Calculator to get an accurate reading on your loan offer!
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