Buy now, Pay later - is it worth it?

by Marcel 11 February 2012

With the financial crisis as it is, many retailers are luring customers with 'Buy now - Pay later', 'Zero percent financing' and other deals to let you take the product home now, and pay for it later, is it really a saving or is it a way to extract even more cash from your pocket?

Remember, no matter what they call it, somehow the purchase is being financed, and the financer also wants to make money on the deal, how do they do this?

- A majority of people don't have the money when the term has expired, which means that you will suddenly be stuck with a loan. The interest rate can run up to well over 16%

- 'Administration costs' are often charged, sometimes up to 50 euro per transaction.

When buying a laptop last year I was tempted to take up the buy now pay later deal that Dell offered me, but after a simple calculation I decided against it. The purchase price was approximately 700 euros and I had the money, but what if I put the money into my savings account for a year? I would actually be making some money off the interest!

Unfortunately the Administration costs were 30 euros, that's approx. 4.3% of the purchase price. The best interest rate I could find at the time was 3.5%, which meant I would actually be losing money. You should always check all the costs involved before purchasing.

For a larger purchase (say over 1000 euros), the calculation sheds a more positive light on the calculation, but there is still the other factor to consider...

Paying it back sounds simple enough when you buy the goods, especially if you have the cash, but it seems that a majority of purchasers do not actually pay the amount back on time! Whether this is due to to unexpected financial problems, or other reasons, it means your interest free loan is no longer interest free and you are sure to pay over the top fees for your purchase.

My advice is, only buy something when you have the cash, it will give you much more peace of mind than being stuck with a loan. 


Savings | Shopping

Saving 101 – Pay Yourself First

by Marcel 31 March 2011

One of the biggest excuses people give for not saving is that they have no money left at the end of the month. Those would-be savers can do themselves a world of good by turning things around and making their savings into just another bill that must be paid.

This is known as the pay-yourself-first strategy, and it is both simple and effective. With the pay-yourself-first strategy you treat your investments as just another monthly bill. So if you want to put away €50 a month, you write a check to your favorite mutual fund, or transfer the money electronically, at the beginning of each month, before you have a chance to spend the money elsewhere.

You can start this strategy with just a few dollars if you wish. You do not have to cough up $50. Instead you can start with $10, or even $5. The key is to get started and get into the habit of savings. Once this strategy is in place, you will find it much easier than you ever thought to save and invest for the future.



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