Should you finance a smart phone? What about a laptop? Let’s look at the data.
As the business landscape changes, so does the way we pay for things. Instead of paying cash or cheque, like we may have as late as the 1990s, we pay on credit. There is also the option to finance many things, when previously financing was for houses and cars.
There has been a fair amount of evidence that shows that while inflation has been out full force for the past two decades, our wages have not caught up, leaving us with less money to save at the end of the day. Things cost more, which may be why they are being financed more and more. Further, companies have been able to see a unique business model in the financing of things.
Not only are companies making it possible for some customers to purchase something that they wouldn’t have been able to buy before, (capturing new customers) through financing, they are also making money off of financing through interest.
It’s genius for the company to offer it, so we’d be remiss to show disdain for the organizations who do this, but it can be bad for you, in some cases. Here’s a look at whether or not you should finance your smart phone (or any other electronic).
Financing a Smart Phone: Interest Rate
Maybe there’s a laptop or a phone that you’ve wanted for a really long time. Maybe when you were checking it out one day, you found out that there is an option to purchase the item by financing it (making several smaller payments spread out over a period of time instead of paying for the item upfront).
One thing that needs to be considered is the interest rate on the financing.
Many companies offer 0% financing if you pay it down within a certain period of time; for larger purchases, that’s usually around 1-2 years. For smaller purchases it could be a number of months.
If you’re looking at 0% financing, even if you have the cash in hand, you should take the option to pay later and pay it down during the term that the company offers 0%.
Because you’ll be able to leave your money in your account, accruing interest for you, instead of putting it all down at once, therefore, you’re better off financially.
If the interest rate is greater than what you could earn with your money in your savings account, then you should not finance the item. You do not want to end up paying double for the item because of interest.
Financing a Smart Phone: Cost of Phone/Electronic
Another thing to consider when looking at whether or not to finance an electronic is the cost of it.
If the phone costs $100, it may not be worth it to consider financing. You likely can get $100 to pay up front for it.
If the electronic costs $1300, that may be a bit more difficult to pay for up front. Consider whether or not you have the money in cash, and whether or not you can pay the financing back in a reasonable amount of time as to not incur too much interest.
Financing a Smart Phone: Need
If you are looking at buying an electronic, a piece of advice is don’t look at buying the electronic at all unless you have the need for it. If you computer breaks down and you absolutely need one, consider purchasing it.
Need also comes into play when looking at whether or not to finance one. Can you hold off and save up for a little while before buying the item, so that you can pay with cash? Or do you need it right away and don’t have the cash with you?
If the need is great enough (and I don’t just mean the “want”, I mean the actual need – ie if your phone breaks down and you conduct business on it), financing may be your only option.
Length of Financing Term
How long is the term of the financing being offered? If it is 60 months long and the item is only $1200, that’s a little excessive. You could end up paying it off even after the electronic is irrelevant and you are no longer using it .
Look at whether or not you want to be paying something back, even at 0%, for a long period of time.
Have you financed a smart phone or another electronic?