Purchasing something on a monthly payment plan may seem like a great option at first glance. However, many consumers fail to do their homework before taking on such a deal.
Low monthly payments and spreading the costs over a period strike as the perfect way to get something you want, to avoid a large immediate payment. It may not be. You have to look over your finances and make sure you understand the terms of the contract before deciding to take on the debt.
Can Your Budget Withstand the Payment?
• Make sure that you can handle the payments.
• Look over your budget.
• Consider whether or not the additional payment will impact your budget negatively.
• If you are already struggling to meet all of your financial obligations, adding another one will only make things more difficult.
Be realistic and honest with yourself as you determine whether another payment is going to hurt you.
Consider Future Obligations
Even if you determine that you can afford the payment now, make sure that you consider future obligations that may be coming up. Do you have a child going off to college? Are you planning a wedding, or do you plan to buy a new house?
If you have any significant expenses coming up soon, take these payments into account before considering credit deals such as buy now pay later catalogues. Understand the agreement’s term, some last for a year, and some can last for five years or more.
What Interest Rate Are You Paying?
Some interest rates are so high that they make these payment plans not worth it. Read the fine print of the contract, make sure you understand how much of your monthly payment is going to the interest. You could end up paying double the cost for the item before your contract gets fulfilled.
Your Final Cost May Shock You
The final step in determining whether or not the monthly payment plan is right for you is defining the final cost. A low payment of say £25 per month may seem reasonable. However, it is smart to multiply that amount times the number of months you’ll be making these payments. The final cost amount may be shocking, once you add in all of the interest.
Once you determine your final cost, ask yourself if the item you are buying is worth it. You may decide that waiting until you can buy it outright is a smarter move or when deals emerge. If you do decide to take on the monthly payments, be sure to make them on time each month. Missing a payment or being late will negatively impact your credit score.
No matter what your situation is, it would be best to consider the final cost before omitting to long term payment plans.
*This is a collaborative post