High cost of borrowing

Here are some tips, which I hope will be helpful to the young people.

Many people are not aware about the high cost of borrowing. They may not be aware that they are borrowing at all.

Buying a product on 12 or 24 months of "interest free" installments is actually borrowing. If you pay cash, you can easily a 5% or 10% discount on the price.

What is the borrowing cost, over a 24 month period?

If you pay interest at 1% per month, the total payment over 24 months is an additional 12%. If you pay interest at 2% per month (i.e. the rate the credit cards normally charged on rolled over balances), you will pay an additional 27%.

If the merchant that gives you "interest free installment" incurs an interest cost of 1% per month (i.e. the cost of funds provided by the financing company), this merchant will give you a cash discount of up to 12% on the product.

You can negotiate for this cash discount. The merchant has probably added this financing cost to the cost of the product.

Suppose you like something now, and does not have the cash to pay for it?

My advice. Start to save now for the things that you may need in the future. By paying cash, you can save up to 12% to 24% on the financing cost of the product. It is a lot of money to save.

Here is another option. Ask yourself? Do you really need to buy that product now? Can you save first and buy it 2 years later?

By that time, the product will come down in price and you save on the financing cost as well. You will get double benefit! You may also get a better product, as products are being improved all the time.