On Consumerism: The installment plan: First do the math

By ARTHUR VIDRO
By Arthur Vidro

A store circular is staring at me, promoting a sale on household furniture and appliances. The deals are straightforward enough: sign a contract, make a payment every month and after 24 payments you own the item.

But let’s look at the numbers.

Here is a Samsung 55-inch “smart-television” on sale for $80 per month (technically $79.99, but I’m rounding up throughout this column) which is normally $112 per month. So, if you buy the television at its original price, you’re paying $2,688 total. Whereas, if you buy the television at the sale price, you’re paying $1,920 total.

Yes, the sale saves you money. But smaller print in the ad lists a “cash price” of $1,127. If you pay the full $1,127 for the TV at the time of purchase, you’re saving 41% off the sale price and 58% off the non-sale price.

Likewise for other items.

A GE washer/dryer duo goes for $110 per month (on sale from $120 per month). After 24 monthly payments of $110, you’ll have paid $2,640 (on sale from $2,880). But the cash price in the same store is $1,550.

Some of you are saying, “But I don’t have thousands of dollars to throw around. It’s hard enough to come up with money for the first payment.”

That’s right. And that’s how it should be.

It’s not fun to hear, but smart consumers who can’t afford the full purchase price tend not to buy, but to save up until they can afford to buy. Whether it be televisions, computers, washing machines, living-room furniture or mattresses.

There is a danger to buying items via the installment plan.

First, you end up paying a lot more money. If you can’t come up with the full purchase price now, then how can you afford to squander the extra hundreds or thousands of dollars you’d be spending on the installment plan?

When you buy on the installment plan, you don’t become the owner until the final payment has been made. Furniture and appliances, like cars, can be repossessed.

I know a couple who bought a bed and mattress on installment, and within a year the items were repossessed. This left the couple with no bed, no mattress and no money back from their payments made. They ended up with zilch.

Granted, there are times when an installment plan makes sense, provided you’re aware of what you’re doing and why.

Emergencies crop up. If your refrigerator dies, replacing it is necessary – even if you have to resort to an installment plan. It’s still far cheaper than eating out all the time solely to skirt the problem of being unable to refrigerate food.

But washing machines? Use a laundromat while you’re saving up for your own machine.

Televisions? Though they provide some pleasure, they’re hardly a necessity. If you need entertainment, turn on a radio or patronize the local used-bookstore. Countless hours of entertainment await you on the shelves of those places.

Before signing up for a car-financing plan, figure out your total cost for purchasing the car (take the monthly payment and multiply it by the number of payments you’re promising to make.) Reducing the monthly payment comes at a high cost – it extends the number of payments and thus increases the total cost for purchasing the car. If you can’t keep up your car payments, the lender can repossess it.

A home mortgage is merely a gargantuan version of these installment plans. That’s why if you can’t keep up your mortgage payments, the bank can foreclose on your home.

I’m not saying one should never use an installment plan. Occasionally, it can make sense, especially if you and the seller can agree that you are renting, not purchasing, the items.

Suppose a presidential candidate wants to establish an office in Claremont because we’re in New Hampshire, site of the second primary. It would make a lot of sense to rent office furniture for however many months they plan to be here.

If you’re assigned 1,000 miles away to substitute for a professor who is off on sabbatical, it would make sense to rent an apartment or house and fill it with rented items. Let the store have its merchandise back. You’ve had your full use of it.

In general, it’s wisest to do the math — or have someone you trust do the math — and try to save.

If you can’t afford to buy a gizmo outright, consider saving up to buy it. In the long run, you’ll have spent less.

If you have consumerism questions, send them to Arthur Vidro in the care of this newspaper, which publishes his column every weekend.