What’s the best way to buy a big-ticket item like a new iPhone or a pricey piece of furniture? Get it financed? Do a payment plan? Or save up, one bit at a time? Here’s how to decide:
First, note the urgency factor. Probably the most important thing to consider is how quickly you need this pricey item. How essential is this item in your day-to-day?
If you can hold off for a while, it might be in your best interest to save up for that purchase over time. If you need an extra $300 for a new couch and one you have is still sittable, see how you can go about saving $25 a week. Three months down the road, you’ll have the cash you need.
Otherwise, you’ll want to consider the good and the bad of financing. The two most important things to check with any form of financing are the interest rates and the time you have to pay it off. Remember, interest is how the folks giving you money up front make their money.
If you’re putting it on a credit card, be honest with yourself. Don’t pretend it’ll only take you two months to pay off when it’s likely closer to two years. Then, punch in some numbers to figure out how much you’ll be paying in interest.
A Point-of-Sale (POS) loan, usually gets marketed to you at checkout through companies like Affirm, Afterpay and Klarna. It normally takes a matter of minutes to go through the process. In some cases, it’s a zero-to-low interest loan.
If it’s zero-interest POS loan or a credit card where you swoop in on a zero-percent APR intro period, either route might be a helpful way to spread your payment out. But if the interest is high, you’re going end up forking over an even bigger number than what was on the original price tag.
Some retailers and brands have also payment plans or promotions you can opt into. For instance, instead of a single payment upfront, you can pay it off in four installments.
While money-wise it’s a better deal than putting it on a credit card or traditional financing, you’re still on the hook for paying it off. Before you sign up for an installment plan, make sure you can afford those near-future payments.
When it comes to big purchases, be realistic about what you actually need, and have a real plan for how you’re going to pay for it.