Credit Cost – Know the True Cost of Buying on Credit?
Question: My husband and I have been arguing over buying a new LCD Television. I want to wait and pay cash, he wants to put it on our credit card because it is on sale. I say that even though we may pay more with cash later, in the long run it will be cheaper than paying with a credit card over time. He says that the paying over time will help our credit score. Maggie, St Louis, Missouri
Answer: Let’s suppose you are buying a nice 50″ LCD television, a washer dryer combo, even a carbon colored stove top or whatever it may be – your interest (for the both of you) is in getting a “best buy” on the merchandise, however price can blind you to the possibility of a “best buy” in using credit.
When you buy on time (credit cards), pay attention to finding out exactly what the total cost of the credit purchase will be – the total comes when you add the down payment, all of the monthly payments, taxes and interest charges and potential penalties for late payments – if they apply. Compare this total to the cash price of the item and to credit costs from other sources. Examine all parts of the contract before you sign, in order to be sure that you know what agreements you are making.
Find Out About Warranty and Service
As you shop for credit (yes you buy credit as well) consider other factors besides cost. What service will you get? Are payment arrangements convenient? Are the payments spread over a long enough time so that you can handle them along with your other expenses? At the same time, is the repayment schedule set up so that you will pay off the loan (buying on a credit card is an unsecured loan) as quickly as possible to save financing costs? And by how much will you be able to reduce credit costs by paying ahead of schedule?
I vote for paying cash. Over time I have found paying cash reduces those impulse buys as well. As for credit score, I would not worry about that. I have not found any vendor yet that looks at a credit score or report when paying with cash!
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