How to be Financially Smart with Installment Buying

How to be Financially Smart with Installment Buying

16th Jul 2020

How to be Financially Smart with Installment Buying

In recent years, consumers have been all but flooded with “buy now, pay later” and other similar payment options. These point-of-sale installment loans, more commonly known as “installment buying,” have become a practical option to finance both a person’s needs and wants.

Additionally, merchants and businesses can benefit from this arrangement. By giving customers the chance to stagger their payments, businesses can close more sales and continue to grow.

If installment buying sounds like a solution for your spending, this guide is for you. Here’s everything you need to know about installment buying to empower you to be a smart consumer and help make the most of this financing method.

Factors to Consider Before Paying By Installment

1. Interest rates and monthly payments

While a wide range of companies and providers supports installment payment, the terms and conditions aren’t always the same. As payment will be staggered over a set period of time, your monthly payments may or may not be charged with interest.

For example, a provider can finance a $100 purchase with monthly payments for four months. At 0% interest, that means you can pay a low total of $25 each month. If the same provider applies a 5% interest rate, you will pay an extra $20 to your balance, bringing it to a total of $120. With this rate, your monthly payments will now be at $30.

Each provider’s approach will be different—some may apply compounding interest, others will opt for monthly payments in decreasing or increasing amounts. It is crucial that you carefully read the offer from your chosen provider to ensure that you’re getting the best rates that you can manage.

2. Penalties

Given that you’ll be paying these installments within a set period, your chosen provider can penalize you for missing a payment. This is to discourage customers from missing deadlines and keeping payments prompt.

Depending on your chosen provider, you could be looking at a flat fee per late payment. Here’s an example: you’re paying $25 a month for four months, but you miss the deadline for the fourth month. Your provider charges you an extra $8 for the overdue payment, bringing your fourth month’s total to $33.

Meanwhile, others can opt to charge you a percentage of your purchase’s value as a penalty. For a $100 item, a provider can choose to charge 25% of the price for each late payment. That translates to a costly $25 on top of your monthly payment.

While it’s essential to pay on time, the unexpected can happen, and you may need to direct your cash to more pressing needs. Choosing a provider that imposes a manageable penalty can save you a lot of grief should you end up delaying your monthly fee.

3. Loan duration

Another important factor is the duration of your loan. The length of time you have before completing payment on the balance can make installments worth it or not. A rule of thumb is that with regular payments, a longer loan duration means having to pay a smaller amount each month.

Not all providers will offer identical payments, nor will they have the same loan duration. By carefully considering the period of time between purchase and paying off the balance, you can better gauge which provider fits your finances best and how likely you are to make your payments on time.

4. Repayment methods

There are a variety of ways a provider can charge you for your monthly payments: cash or check deposits, debit card payments, digital platforms, and more.

When considering an installment plan with a provider, you need to make sure that the repayment method fits your needs and the means you have access to. Otherwise, you run the risk of missing payments due to your struggle with the available method.

5. Ease of repayment

It’s not enough that a provider’s repayment method is compatible with the financial means you have access to. You need to choose a provider that allows you to smoothly and easily transact with them. Facilities like automatic payments, online portals, and payment reminders make keeping your monthly duties prompt and friction-free.

Advantages of Installment Payment

If you’re unsure if installment payment is a good fit for your needs, here are a few benefits this financing option has to offer.

1. 0% interest option

Most providers allow for installment payments with 0% interest. This means that purchases can be yours at no extra cost and without the burden of needing the entire amount at once.

Depending on the terms and conditions of your installment plan, you can easily defer the balance into many manageable payments over weeks or months. With 0% interest, you can easily predict the amount you’ll need to pay and have time to prepare for it.

2. Less strain on your cash flow

Purchasing big-ticket items like a new computer or refrigerator can potentially strain your finances. If you’re low on cash or prompted to purchase such items without planning—like in the event of a sudden breakdown—paying in full can be a costly mistake.

Through an installment plan, you’re able to pay in smaller amounts over a fixed period. In turn, you’re able to keep more cash on hand for other necessities.

3. Budget properly

Having the ability to buy something now and settle the balance later requires the discipline to keep up with the payments in the weeks or months dictated by the plan.

As mentioned before, having a consistent amount to anticipate each month can be a big help in planning your upcoming expenses. This predictability makes it easier for you to visualize your budget and therefore stick to it.

4. Build credit reputation

It can be challenging to get credit when you have little to no experience with it. With most providers, installment plans can give you access to a line of credit while relying less on traditional markers of creditworthiness, like credit score and history. Installment plans can count towards your credit report, helping you build your credit reputation in a more accessible way.

In addition, installment plans can also help those with poor credit history. By paying off a qualified installment plan on time, your credit score will improve, and the consequences of previous mistakes may mitigate. In turn, your improved creditworthiness may entitle you to even wider access to credit in the future.

Items You Should Buy in Installment

The installment buying model works best only for certain things. Generally speaking, these are expensive purchases that are unavoidable and needed immediately:

1. Computers and gadgets for work or school

In this digital age, computers and other electronic gadgets have become necessary for students and professionals to complete their tasks. Whether you’re a fresh hire who needs a computer to start the job or a student who needs a tablet to access important readings, installment plans can help you get what you need without having to jump the financial hurdles.

Refurbished computers are also becoming a viable option for students or young professionals because of its affordable price but high-quality performance. Refurbished sellers such as Macs4U even offer a variety of financing options to help you budget properly.

2. Replacement appliances

Air conditioning units, refrigerators, and stoves are just some of the essentials to urban home living. Once these appliances inevitably break down, it is essential to replace them. Installment payment gives you the chance to buy replacements without putting a dent on your finances.

3. Critical home improvements

A plumbing system that needs some serious overhauling or living space that is now suddenly vulnerable to the elements is not something that you can ignore until you have the funding. By availing of installment payments, you can keep your home in good condition and keep your cash flow stable.

4. Emergency travel plans

Depending on the nature of your employment or lifestyle, you may encounter a situation where traveling will be necessary. Airfare and accommodations are still considered luxuries, especially when they are unplanned. Installment payments allow you to defer the cost to later dates while enabling you to make the trip.

Be a Smart Buyer

At the end of the day, installment buying can be an excellent financing option for addressing needs without hurting your financial status. It offers consumers an opportunity to manage their budgets better and improve their credit reputation.

For people who need powerful devices to jumpstart their careers or enhance their learning experience, Macs4U offers refurbished Apple computers for sale with trusted installment options. For an installment plan that fits your budget best, visit today.