Friday, March 12, 2010

Interest charge on installment payment

I saw the following advertisements in the newspaper:

Acer netbook, cash price $599, weekly installment of $5.47 over 48 months
Toshiba notebook, cash price $939, weekly installment of $8.58 over 48 months

In both cases, the installment payment plan charges an interest rate of 0.7% per week, or 36% per annum. By paying cash, the consumer will save on interest rate of 36%.  The total amount payable over 4 years represent an additional 90% of the cash price.

If the consumer pays in cash, he would be able to get two netbooks or notebooks for the same amount payable.

Note: you can calculate the interest rate in this type of transaction by using the Excel function called Rate.

Tan Kin Lian
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4 comments:

Anonymous said...

Same problem with Land banking. Should not take up or touch it at all. But still there are people who got trap even when we are speaking.

So what's the problem? Salesmanship, brand e.g. Courts/Harvey Norman, celebrity names etc.

Best is still for regulator to get involve. Clean and effective. But what do regulator think? Not important, better to make their boss happy to save their own job. Now the priority is images of bosses and election preparation e.g. make sure all numbers look good.

March 12, 2010 6:08 PM
Anonymous said...

Why protect when the consumer is impatient to save and pay in full?
The consumer wants the product NOW! and is willing to pay for it by installments because he does not have the cash now, but will have a little at a time?

Its a fair deal of needs and wants.

March 12, 2010 10:53 PM
Anonymous said...

Most S'porean like to buy using future money, be it houses, cars, etc. I am the opposite, I saved and buy using as little instalment as possible, so that I have enough buffer in case things go wrong. I don't like to buy when I have no confident to repay. It is this buy now, pay later or worry late mentality that partially contribute to the ever escalating prices of properties in S'pore. But the bubble will burst one day. As long as the bank wants to lend the money, I should be able to pay. But the bank can be wrong because no one can foresee who will be the next one to be retrenced or fall seriously sick or get into a serious accident. It's better to be prudent.

March 13, 2010 12:05 AM
Anonymous said...

My theory is that anything you cannot pay upfront means you cannot afford it FULL STOP

March 16, 2010 5:33 PM

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