Everyone likes to brag about deals they’ve gotten on big-ticket items, electronics and the like. Retailers often show the price you’ll pay next to a higher one, and savvy savers visit sites like Retail-Me-Not in search of coupon codes before making purchases.
The problem comes when we pay for items not with cash but by financing. Let’s take, for example, a 19″ LCD HDTV I found on Amazon for $197.79. Awesome, it’s just under $200! Now let’s put it on our credit card with 14.9% APR and a minimum payment of 2% or $10. If we make minimum payments on our bill (and studies suggest most people do), then it will take 23 months (nearly 2 years) to pay off and cost us an additional $31.
“I bought a $197.79 tv for $228.79” doesn’t sound as good as “I got this great tv for less than $200,” does it?
And if $31 doesn’t sound like too much, consider that it’s 15.6% of the original price. 15% sale is great, paying 15% more…not so great.
The higher the item’s cost, the more we end up paying. A $950 computer on the same card will cost you $1023 in interest and take 13.5 years to pay off if you’re just making minimum payments. The interest is more than 100% of the original price.
Not only does interest cost you, but you’re paying more for something that will be worth less by the time you’re through paying it off. Top-of-the-line computers are middle-of-the-line in a year. A car’s value drops dramatically in the first few years. That same money will be able to buy a 25″ tv in a few years (or perhaps even now, I wasn’t doing this as a comparison shopping exercise).
Next time you consider financing something, ask yourself if you’re willing to pay more than the asking price for it. Ask yourself how long it will (really) take you to pay it off. Even if you pay it off faster, you’re only cutting the extra you’re paying, unless you use a form of 0% financing and really do pay it off in the allotted amount of time.
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This is a great reminder that sometimes we really aren’t getting the deal we think we are.
.-= Miranda´s last blog ..Is The Economy Starting Its Recovery? =-.
You know where else I think people forget about the interest? Houses. They think I bought for x amount and sold for x amount plus y amount. I made a great return. Maybe, but subtract the interest you paid and any maintenance costs you did. Then see how much money you made.
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