By Scott Purdie
Consumerism is all around us with constant advertising messages from television, radio, print, as well as online. Advertising is such a creative art in that it’s meant to get a consumer to think about wanting a particular product or service in hopes that in time, the ad will bring the consumer into action – in other words, making a purchase.
In today’s consumer-driven society the ads we most often come across are for consumer goods and products such as vehicles, electronics, furniture, appliances, clothing, food, etc. Advertisers have come up with very creative methods to make buying such items so easy without much consideration for someone to plan their budget on whether or not he or she can afford that item. “Buy now, pay later” payment plans have been in existence for quite some time among giant and small retailers alike.
Purchasing products on payment plans of 12 months or even 24 months is very common in that it allows the consumer to have that particular product now while allowing the flexibility of making monthly payments over time. These payment plan options can sometimes work for the consumer in a positive way, but like anything else, there can be negative consequences – especially if payment arrangements aren’t met. This leads to additional interest and other charges that often make payment of the debt very difficult.
However, there is another option for consumers to acquire products that has exploded in recent years, which is the “lease-to-own” concept. How does it work? It’s quite simple. Consumers who are unable to afford the one-time costs of a particular product (television, computer, stereo system, dishwasher, fridge, etc.) can make low monthly payments over time until it is paid off. This option is tempting for consumers who have poor credit as they normally wouldn’t be able to qualify for “buy now, pay later” plans. It’s also tempting for consumers to go this route as some retailers offer free delivery and set-up along with full warranty coverage which is included in the monthly payment. The major “kicker” here for consumers is the low monthly payment. While it sounds great at first, this can be extremely costly in the long run. Here are a couple of examples to illustrate the “lease-to-own” concept, showing how costly this venture is over time versus purchasing a product up front.
Example #1: A Samsung 43-inch plasma television is yours for only $15 per month over 156 months (or 13 years). That purchase over 13 years will cost you $2,340! If you purchased that same television at a major Canadian retailer, you would pay only $399.00 plus additional sales taxes. Leasing that television over time will cost you nearly six times as more than if you purchased the TV up front.
Example #2: A Whirlpool 22 cubic foot side-by-side fridge in black will cost $22 per month over 156 months which totals $3,432 in the end. A slightly larger Whirlpool model with more options costs $999.00 plus sales taxes – more than three times less the cost over the lease-to-own option. The major problem with such lease to own arrangements are that you don’t know the full cost of the item let alone what the cost of the interest is. In many cases the added interest costs when compared to retail prices can sometimes range anywhere from 150 to 500 per cent!
If you’re considering making a purchase and you can’t afford the up-front cost of the item, rather than going with the lease-to-own option, try saving a bit of money each month until you’re able to purchase the item outright. While saving money does take time, it can be worthwhile – especially when you realize the time and effort it took on your part to set a goal and then achieve it. You’ll appreciate the purchase even more than if it had been financed on credit or monthly lease to own payments.
If you want more information on how to make a budget, become a better money manager, or look at debt repayment options, feel free to contact us today for an appointment.