Pay­ing off that $699 TV over 3 years costs $2000

Auckland City Harbour News - - OPINION -

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.

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