I was recently sitting in a waiting room, flicking through a magazine. They had an advert for a women’s clothing catalog and the prices were shown as monthly installments.
For example, one dress was only R57 a month over 12 months or R109 per month if you paid over six months. This sounds like a great, affordable way to buy clothes ‒ until you check what you would have paid if you used cash upfront.
In this advert if you paid cash the dress would have cost R499. Yet if you paid R57 over 12 months, the dress worked out to R684 – so you pay an extra R185 for that dress. That is 38% more than it actually costs, or to put it another way, three additional months’ worth of installments.
In another advert, one could have bought a set of three dresses for a cash amount of R1 200 – yet there was an option to pay R106 per month over 16 months. By selecting that payment option you end up paying a massive R497 more than the actual price of the dresses. You could have a whole extra dress for that.
Simply by saving the monthly installment you would be prepared to pay, you could save up for the dress in a couple of months, pay cash and use that money you would have paid in interest for some other luxury – or even better still – towards your savings plan.
A nice dress is not something you should be putting on credit, no matter how much it talks to you.