Recently I read a great post on Facebook by Ric Payne in relation to financial literacy.
Ric mentions that he was talking to a friend and that they were looking at buying a rug. The retailer was offering interest free terms, however there was a small monthly fee of $8.95, hardly $2 per week. The monthly payment based upon the item they were looking at for $1,249 was only going to be $29.77 per month.
It was suggested that they would be paying hefty interest on the item. But the potential purchaser stated that it was an interest free offer and there was only a small monthly fee.
In the example above, the payments were to be over 60 months making the total repayment $1,786. This is $537 more than the advertised price. This additional amount equates to 15.09%.
This post from Ric was timely as I was looking at updating my phone (it has been through countless conflicts with the concrete path and has lost its capacity to include anything new – a bit like me). This inspired me to see if ‘interest free’ terms were available. Low and behold I could get a new phone on interest free terms, a 1000 days in fact which certainly sounds a lot longer period than 60 months (sic). However this offer also had a service for of $8.95 per month which over a 1000 days would total an additional $300 approximately.
These offers appear quite regularly and are often taken up in most cases. Its interesting that as Ric points out in his post the lack of financial literacy we have and is something that we should have instilled in us from a young age.