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Friday, January 29, 2010

Buying consumer goods on installment payment

A furniture store advertised several products, e.g. television, notebooks, computers, furniture, cameras for sale on cash or weekly installments over 48 years.

Here is an example:
Notehook: cash price $1,299
Weekly installments over 4 years (i.e. 208 payments) of $11.87

Here is my calculation of the interest charges:
Total  payment over 4 years: $2,469
Cash price: $1,299
Interest charge: $1,170
Annualized interest rate: 36%

Using installment payments, the customer has to pay almost twice of the cash price. The interest charge is almost as much as the cash price. The same formula is applied consistently on all of the products offered on weekly installments

By saving in advance and paying cash, the customer can save a lot of interest charges. It is important to save and pay cash, rather than buy consumer products on installment payments.

Tan Kin Lian

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