Wednesday, June 6, 2018

60-month Installment Payment Plan at Courts - a simple lesson in cashflow and expenditure management?

Recently I went to Courts to check out some furniture for my home. While browsing, I realise besides having shorter term installment payment plan (IPP) which comes free of charge, there is also the option of 60 month IPP.

For a cabinet costing $899, there is a 60 month IPP option that lets you pay, wait for it...

$39.95 a month. Whattt?

Multiply this figure by 60 and you get $2397. One would be paying 167% more for the product overall. If you annualise this value, you are paying an extra 33.4% effective interest per year!

This is even higher than your typical credit cards' interest rate!

In fact, in the first year alone, you are paying $479.40. That's slightly more than 50% of the original cost. If one is financing their big ticket items such as furniture or electrical applicances costing 4 digit, it is naturally a better option to opt for IPP that lets you pay off over 24 months/36 months, and interest-free IPP are not that difficult to find?

Usually the choice of IPP is made based off managing cashflow (especially when it's 0% interest).  It got me thinking about just under what kind of circumstances would warrant the extremes of selecting a 60 month payment plan.

No matter how much I wrap my head around this, it sounds like either bad expenditure management, bad cashflow management or otherwise circumstances forcing one to select such a plan.

A lesson is drawn from this - one should never let debt overrun expenditure management; it is a surefire recipe for disaster.

1 comment:

  1. They were famous for this 20 yrs ago. I'm surprised they still have it since any tom dick harry today have 2 or 4 cards. Originally meant for those without credit cards as not many qualified in those days (much lower salaries & stricter bank assessment). Those with poor cash mgmt and shaky jobs inevitably fell behind installments and the store had repo teams to repossess the items. Heard rumours that most items were refurbished and resold as display sets.