Context
Now imma go ahead and humiliate myself a bit here, cause i was that one kid back in highschool who didn't consider economics class as an important subject because it was boring (lol), now it's come to bite me back in the butt. So basically, my father's getting me a new laptop, and quite the expensive one, around $2000. When i showed him that it was available for order (online), he asked me "What's the monthly installment?"
And i was like, what's that? So i went over to the internet and searched a bit. I then realized what it was, and that most likely he had been doing monthly installments/payments on all our expensive devices. I never realized there was such thing, i thought we had always paid them in full all this time. Now don't bully me too much lol, after reading more about this it seems like it's something everyone should already know, but i didn't so yeah.
My Understanding
Now for the purpose of this post, I just wanted to make sure that my understanding of monthly installments is correct.
1) It's basically a way for you to get the item straight away at an affordable price, and slowly pay it off over the months/years.
2) This is not only applicable to laptops, but many other necessities as well.
Clarifications
Below is a list of things i further discovered when researching about monthly installments, and would like to see if my understanding of it is correct.
1) Credit Score. It's basically a score that determines how trustworthy you are in paying your payments in time, right? If you have a history of missing payments, chances are the lender won't continue with the monthly installment plan. I've even heard that your monthly payments can even increase or decrease depending on your credit score.
2) Interest. One of the factors that got me into me into researching more is this. Below is an image of the monthly installment plan of the laptop. This again showed how naive i was, seeing how monthly installments work, i thought it'd be smooth sailing from here, but it seems there's interest involved as well.
As you can see, from what I can tell there is around a 5-6% interest for the first 12 months, 15% for the next 12 months, and a 29% interest for the remaining 12 months. An installment plan of 3 years. What surprised me is that it seems like by the end of the installment plan, i'd be paying almost twice the initial value of the laptop. I think this is the reason why people say "It's cheaper to build a desktop PC".
3) Deferred Interest. I believe this is what my father is trying to achieve when he saw the monthly installment of the laptop. He said he'll be calling some banks to see if we could get 0% interest for idk how long, but i'll leave that to him. So basically deferred interest is kinda like a promo i assume? Some cards provide deferred interest for a specific amount on time, while some lenders provide i.e. 0%/12mths promos along with their products.
When you have this option, you could be paying off the loan in 0% interest rates, however there is a catch, and that's missing payments. From what i've read, you actually build up interest over the months but it won't be applied until you've messed up a payment, THEN you will have to pay for the x months of interest.
4) Missing Payments. Probably what i consider the core of monthly installments (related to #3?). So long as you pay in time, nothing bad will happen (or are there other factors I don't know of?). But when you miss even a single payment, you could suffer an even higher interest rate (from what i've seen).
Conclusion
Well, i think that's it. I do apologize for the long post but i really got interested in this and would appreciate if any further context could be provided. This has really opened my eyes to what i could potentially be doing once i've gotten a job and once i become independent. Thanks for reading :)
Submitted August 31, 2020 at 08:50PM by Netherzapdos https://ift.tt/3jzR4OS
