Don’t be fooled by interest-free installments – Loan in Installment
“Buy now, pay next month. Completely interest free ”. When you shop online or in stores you are often offered the opportunity to split the payment. We have already learned to be a bit skeptical of high interest rates – but the stores are now attracting interest-free payments. highriverhighlandgames.com has more information
But is it really as good as it seems?
When you order products or services on the internet, you are often offered to buy the product on invoice. At the end of the month or in periods of tough finances this can sound very beneficial, and especially when you also have the opportunity to pay the invoice for a longer period. But the truth is that often the cost becomes much higher the longer the installment period you choose – even if it is interest-free.
Interest-free is not equal to fee-free.
Payments are also a type of loan. And despite the fact that interest-free installments sound like a great offer, it often hides a lot of other fees that you should be aware of – for example, setup fees, invoice fees and administrative expenses. A better way is to compare the effective interest rate – that is, all the costs (interest and fees) associated with all types of loans.
Example: You buy a new washing machine for USD 10,000, divided into one year interest-free payment. You pay USD 395 in the setup fee and an administration fee of USD 39 per month. After one year you have paid 10,863, which is an effective interest rate of 8.63 percent, which is higher than the interest rate than a regular private loan.
Priceless when the unforeseen happens
But sometimes the unexpected happens. A broken fridge or washing machine you want to be able to replace immediately. If you do not have a buffer, you must be able to finance the purchase in another way.
Then installment can be an alternative – preferably interest-free. But be sure to read the terms carefully and make sure to pay the invoices on time to avoid the reminder fee and interest rate, the latter is usually considerably more expensive than a bank loan. By being conscious and making smart choices, you can avoid the traps that are lurking.
There are also stores that sometimes offer completely free installment, but this usually applies to shorter periods, about 3-6 months.