Paying off that $699 TV over 3 years costs $2000
Buy now, pay back slowly.
In many instances it is catastrophically, financially awful for your finances.
Among the many bad things about buying now and paying back slowly is that the price of doing so can be hideous, even if the weekly payments sound affordable.
A good example is the proliferation of companies that will sell you household goods like whiteware, barbecues and freezers on deals where the buyer makes payments over the next 36 or 48 months.
Some of the deals are so awful it is hard to credit them. Take this one from DTR, and note: This was on an item marked ‘‘sale’’ on the website when I wrote this column.
It was a Haier 258 litre chest freezer. To own it, the purchaser needed to make pay-ments of $10.15 a week over 48 months.
Affordable? Until you realise that $10.15 multiplied by 52 weeks, multiplied by four years comes to $2111.20.
Popping into my local 100% store I found this item was selling for $699. The DTR deal involved overpaying by more than $1400!
There were options to pay more over a shorter period. If you opted to pay $26.50 a week for a year, you’d only end up paying $1378.
I’ve not picked the worst deal. I don’t know how bad the others are. That was the first one I looked at.
The second was a 32 inch Samsung HD telly on sale by Instant Finance’s MyHome (tagline ‘‘easy pay, affordable homeware’’). Just $12.80 a week for three years. That’s $1996.80. Our friends at 100% sell that particular TV for $699.99. These are numbers so large I had to go back and recheck them twice just to be sure I wasn’t going mad.
The sad truth is that folk who buy TVs and freezers this way are probably poor and they are the folks who can least afford to overpay for stuff.
The sane way to pay for that freezer is to save $10.15 a week for 69 weeks to buy it.
The sane way to pay for that TV is to save $12.80 for 55 weeks and buy it in cash.
Even buying that freezer on a credit card at 20.95 per cent interest and repaying it at $10 a week would only have the price paid after 19 months and the total paid would be $823. But of course that just goes to show that the effective credit rate on these deals is astro-nomical.
Again, that points to them being deals for people who are not great credit risks, among them poor folk.
To my mind, the only items that should be bought on the ‘‘buy now, pay back slowly’’ model are ‘‘appreciating’’ assets like houses and necessities, not luxuries.
I can stretch the definition of necessities to a car to get to work.
A TV doesn’t fit into my definition of a necessity.
Luxuries are things that are best saved for and bought in cash.
Having debt or a pay back slowly obligation puts you (and hence your family) in bondage to a business and if for some reason you can’t make payments, things can get very uncomfortable indeed.
It’s not a risk worth taking to speed up the acquisition of a luxury or to improve your ‘‘lifestyle’’ although it may be unavoidable for a necessity from time to time. The trick is to work out which is which.