Don’t Pay Later

Jan 10, 2013 2 Comments by

A family member recently advised me that I should buy a washer and dryer on a “Pay Later” plan. She claimed that it would be a very smart thing to do as I can put the equivalent amount of cash, which I have available in the bank, into a savings account or an investment vehicle. Although on paper a Pay Later at 0% interest plan may seem smart, it is not a good idea in the real world especially if the debt is small. At the time I just smiled and nodded as she is not financially successful and I don’t take financial advice from someone who doesn’t have a successful portfolio to show for.

Negligible earnings not worth the hassle
Let’s say that I was going to take up one of these Don’t Pay Now, Pay Later deals. My total budget for a new washer and dryer is $1500 for a well rated, high efficiency washer and dryer which includes tax and delivery fee. My opportunity investment for a short term debt is a savings account that gives me a 1.35% interest. This means that if I was to invest this $1500, I would get a whole big $20.25 after 1 year! My costs would possibly include 2 transaction fees to move the money into and out of the savings account and a fee to pull my credit report to ensure the debt has been cleared after repayment. This easily erases any financial gains.
For the record, I did look online for a used HE washer and dryer. The pickings were slim for a reliable model and savings were slim compared to buying new.

Still debt
Although no interest is charged during the first year, it is still debt that has to be repaid in the near future. If I were to have my eye out on a big purchase or had an unbudgeted expense, it would be tempting to use this “extra $1500″ cash available as it is really disguised debt.

Lack of organization
I’m only human and as much as I’m organized to handle most bills, I don’t want more on my plate. Paying off a $1500 loan in exactly one year requires organization. I would need to put this bill in my calendar a year from now and make a note of where the bill is stored in my house so that I can pay it off. In addition, I would need to wait 2-3 months and pull my credit report to ensure the debt has been repaid according to my creditors. I’m not that organized and doubt most people are.
Risks
If I were to fill out the credit application, more of my personal information is available for identity fraud. In addition, my payment might get lost in the mail or there may be an online transaction error. If I spent the money instead of saving it and were to lose my job, I would be an additional $1500 in the hole.

Can you think of any good, real example of how a Pay Later plan might help you?

Debt, Frugality, Leverage, Lifestyle, Savings

About the author

Clara Cannes, the chief author from Goldeneer is a Canadian that works as a full time employee in the engineering field. Her passion is real estate, entrepreneurship and sustainability. Clara has finally reached financial independence in her late 20's and is on the path to a comfortable retirement by 35.

2 Responses to “Don’t Pay Later”

  1. Jane Savers @ The Money Puzzle says:

    The only time I can think of when a buy now pay later scheme would be if your fridge died a sudden death. Those buy now pay later places usually offer free delivery and removal of the old appliance. For those of us without a truck and with old friends this is a bonus. There is no reason that you have to wait until the term is up to pay. You can pay as soon as you are able or start making smaller payments now. As long as you have it all paid off before the interest kicked in.

    No excuse to do it for a television, new couch or dining room suite.

  2. Ginger says:

    I’m confused on why you would have a transaction fee for moving the money, or the credit check. I never pay fees to do ACH transfers and you can check your reports once a year for free.