Buying on credit

Buying on credit: a well-known term in the sales world. Many people buy on credit or buy under the condition of deferred payment. You see it in stores where they sell more expensive household equipment, such as a washing machine, television, computer, etc. How exactly does that work and is it recommended? The pros and cons of buying on credit:

Loan form: buying on credit

Buying on credit is purchasing items such as a sofa, refrigerator, etc., and the amount to be paid in installments can be repaid. This is often offered in various stores where they sell furniture or household appliances. There is often an action sign: Pay only 30 euros per month. This example is a form of purchasing on credit. The advantage of this is that, for example, if the washing machine suddenly breaks down and there is no money for another one, a new washing machine can still be purchased. The payment can then be spread over several installments. The major disadvantage of this is that it carries a lot of interest. And many people don’t know that. When purchasing on credit, you take out a loan. And borrowing money costs money. Not only the borrowed amount must be paid back, but also the interest. This can sometimes be as high as 21 percent! Buying on credit is extremely popular with mail order companies: small purchases can be made, but payment will come later. Without anyone realizing it, an enormous debt has quickly arisen. And this is because one has taken out a revolving credit. Borrowing money is not done at the store or the mail order company itself, but through a lender. The store or mail order company fills in your details and sends it to the lender, who gives the retailer the complete lump sum for his product. You now have a loan contract with the lender. The shopkeeper has his money and has nothing more to do with it. The store or mail order company is therefore no longer the point of contact for problems regarding the loan.

Buying on deferred payment

Deferred payment is also offered for many large items such as washing machine, dryer, refrigerator, TV, etc. This is often stated as a promotion: buy now and pay in 12 months. This can also be a term of, for example, 3, 6, 9 or 24 months. This can be very useful for people who have no money at all and cannot spare any money for the time being. When you really need a new washing machine and there is no money for it, not even money to take out a loan for it. The disadvantage of this is that payment must be made after the deferred period. This can be done all at once or in installments. And here too, interest is paid on this. When entering into this agreement, one must be sure that money will also be available after the deferred payment period has expired. If the amount is paid before the end of the term, there are often only small costs involved in the form of administration costs. Please inform the seller well in advance and do not sign a contract blindly. When purchasing on deferred payment, you also enter into a contract with a lender. The retailer or mail order company is not responsible for the handling of your loan, and if you have any problems you must contact the lender.

Depreciation

What is a shame about purchasing on credit or deferred payment is that your purchased items decrease in value over time. Example: You buy a nice large LCD television for 3000 euros on credit. You pay 100 euros per month. With an interest rate of 18 percent, it will take you 36 months to pay off this TV. The technical lifespan of an LCD TV is 5-6 years. So after 3 years your TV is worth 1500 euros.

  • Your 3000 euro TV is still worth 1500 euros after three years, a depreciation of 1500 euros
  • Your repayment after two years is approximately 2360 euros. Your TV is then still worth 2000 euros. After two years you have already paid off more than your TV is worth at that moment!

Issues

Buying on credit or deferred payment has become far too easy with retailers and mail order companies. As a result, people often buy a product without thinking about it, which they cannot actually afford. This is one of the reasons that more and more people are getting into debt. This is a major problem, not only for the people themselves, but also for the government. Because this means that more and more people are entering into debt restructuring. And the money that is ultimately forgiven to people in debt restructuring ultimately returns to the companies and the government. Taxes that are waived are also charged to the municipality in which you live. By the way, debt restructuring does not just happen: buying on credit or deferred payment is certainly not a license to purchase whatever you want. Therefore, first consider carefully whether the product you want to purchase is really necessary. Whether it makes more sense to continue saving.