is buying on finance always a bad idea? (new washing machine)

bamme89

hi all, I was taught to only ever buy things outright and avoid loans where possible, plus I am a commitment phobe, and so I have never bought anything on finance, but some people have pointed out to me that in some contexts, paying per month is better for cashflow.

I want to buy a new washing machine that is more economical. is buying it on finance a bad idea? here are the details:

Pay 36 monthly payments of £14.14. Total amount payable £509.04. 

Representative example: Rate of interest 29.9% (variable). 29.9% APR representative (variable)

The variable part scares me a bit, but I am admittedly clueless on what is wise to sign up to, and what is not. Can you guys help me?

molerat

Finance itself is not a bad idea, paying 29.9% interest is the bad idea !

Paying interest is OK if you really need something, buying shiny things on finance that you don't really need and can't afford is a really bad idea.

IMO the current trend of advertising should be banned, almost everything is now advertised as "Only £xxx.xx per month" with the actual costs being in the virtually unreadable small print.

MattMattMattUK

Buying things one can afford and needs on interest free credit can be beneficial, the money can be elsewhere generating interest/dividend, however as soon as one starts paying interest on the product or service that benefit is wiped out and it generally falls back to "stop buying things you cannot afford"*. 

As an example buying the item on credit as you propose is going to cost you £160.04 extra, nearly half the price of the product, that is very much a waste of money and a bad idea unless the item is something that is absolutely essential and is something that you cannot afford any other way.

*not directed at you personally, as a general concept. 

bamme89 said:

I want to buy a new washing machine that is more economical.

Also, in relation to that part, how much more economical? Unless the existing machine is 20+ years old you are unlikely to see significant savings, if the one you already have is less than ten years old you will likely never get a net benefit from disposing of it early, rather than waiting for it to break. You would be far better off putting the £14 pm into savings every month for when the current machine breaks, then buying a new one at that point, it is highly likely that you will have more money than you need at that point. 

bamme89

MattMattMattUK said:

Buying things one can afford and needs on interest free credit can be beneficial, the money can be elsewhere generating interest/dividend, however as soon as one starts paying interest on the product or service that benefit is wiped out and it generally falls back to "stop buying things you cannot afford"*. 

As an example buying the item on credit as you propose is going to cost you £160.04 extra, nearly half the price of the product, that is very much a waste of money and a bad idea unless the item is something that is absolutely essential and is something that you cannot afford any other way.

*not directed at you personally, as a general concept. 

bamme89 said:

I want to buy a new washing machine that is more economical.

Also, in relation to that part, how much more economical? Unless the existing machine is 20+ years old you are unlikely to see significant savings, if the one you already have is less than ten years old you will likely never get a net benefit from disposing of it early, rather than waiting for it to break. You would be far better off putting the £14 pm into savings every month for when the current machine breaks, then buying a new one at that point, it is highly likely that you will have more money than you need at that point. 

Thank you, putting this into savings is a great idea. I can technically afford it if I want to buy it, I am sometimes told I am making things hard for myself not ever making use of finance, e.g. most people get cars this way etc, but I am assured by the replies here that most of the time it’s the best choice not to do so as you just pay twice as much! Also good point about the actual savings, it is a drain on my bills as it’s old and doesn’t have short cycles, but I did work out a new one would take 5years at least to pay for itself.

May I ask (as a newb to any sort of credit) in what contexts would you ever find a vendor or company offering interest free credit? Like, what would be the payoff to them of offering this? 

Also completely separate question but does ‘variable’ means they can put the interest rate up any time they want? 

prettyandfluffy

If you are eligible, you could join Costco - the online only membership is the cheapest.  We got a very good deal on a washing machine from them.  Pay on a 0% credit card and pay it off within the 0% period plus you have S75 protection.

MattMattMattUK

bamme89 said:

MattMattMattUK said:

Buying things one can afford and needs on interest free credit can be beneficial, the money can be elsewhere generating interest/dividend, however as soon as one starts paying interest on the product or service that benefit is wiped out and it generally falls back to "stop buying things you cannot afford"*. 

As an example buying the item on credit as you propose is going to cost you £160.04 extra, nearly half the price of the product, that is very much a waste of money and a bad idea unless the item is something that is absolutely essential and is something that you cannot afford any other way.

*not directed at you personally, as a general concept. 

bamme89 said:

I want to buy a new washing machine that is more economical.

Also, in relation to that part, how much more economical? Unless the existing machine is 20+ years old you are unlikely to see significant savings, if the one you already have is less than ten years old you will likely never get a net benefit from disposing of it early, rather than waiting for it to break. You would be far better off putting the £14 pm into savings every month for when the current machine breaks, then buying a new one at that point, it is highly likely that you will have more money than you need at that point. 

Thank you, putting this into savings is a great idea. I can technically afford it if I want to buy it, I am sometimes told I am making things hard for myself not ever making use of finance, e.g. most people get cars this way etc, but I am assured by the replies here that most of the time it’s the best choice not to do so as you just pay twice as much! Also good point about the actual savings, it is a drain on my bills as it’s old and doesn’t have short cycles, but I did work out a new one would take 5years at least to pay for itself.

Short cycles are generally less efficient than long cycles, they also tend to not wash as well as longer cycles. Using finance that is free, or at the least very cheap can be beneficial, using finance that costs money is generally only sensible for mortgages, almost everything else does not make sense. Many people do get cars that way, I and many on here will regard those people as very daft, they are buying a depreciating asset on high cost finance. Now they may decide that having a new car every three years to show off to their friends is a good use of money, but as they are buying it on finance they cannot really afford it and their friends are likely to be aware of that and the additional costs of finance make it an even worse deal.

bamme89 said:

May I ask (as a newb to any sort of credit) in what contexts would you ever find a vendor or company offering interest free credit? Like, what would be the payoff to them of offering this? 

Some do it to get sales where they would otherwise loose out to competitors, Ford did it several years ago, three years free finance on their cars, their sales went up significantly, other times for retailers the cost is not huge, it might only be open to those with very good credit reports so the cost of finance is low as those customers present little risk, other times a manufacturer will underwrite it to boost sales etc. Credit cards will do it with 0% purchase offers as they get interchange fees and gain new card holders and some of those customers will also carry a balance beyond the promotional period. Others may just have a higher upfront product cost. Regardless it is all factored into the cost of them doing business. 

bamme89 said:

Also completely separate question but does ‘variable’ means they can put the interest rate up any time they want? 

Not any time they want no, it will normally be linked to BoE base rate, it could rarely be linked to something else, it does not hugely matter, 29.9% interest is an awful deal. 

bamme89

prettyandfluffy said:

If you are eligible, you could join Costco - the online only membership is the cheapest.  We got a very good deal on a washing machine from them.  Pay on a 0% credit card and pay it off within the 0% period plus you have S75 protection.

Actually I am a member! Thank you! What is S75 protection?

bamme89

MattMattMattUK said:

bamme89 said:

MattMattMattUK said:

Buying things one can afford and needs on interest free credit can be beneficial, the money can be elsewhere generating interest/dividend, however as soon as one starts paying interest on the product or service that benefit is wiped out and it generally falls back to "stop buying things you cannot afford"*. 

As an example buying the item on credit as you propose is going to cost you £160.04 extra, nearly half the price of the product, that is very much a waste of money and a bad idea unless the item is something that is absolutely essential and is something that you cannot afford any other way.

*not directed at you personally, as a general concept. 

bamme89 said:

I want to buy a new washing machine that is more economical.

Also, in relation to that part, how much more economical? Unless the existing machine is 20+ years old you are unlikely to see significant savings, if the one you already have is less than ten years old you will likely never get a net benefit from disposing of it early, rather than waiting for it to break. You would be far better off putting the £14 pm into savings every month for when the current machine breaks, then buying a new one at that point, it is highly likely that you will have more money than you need at that point. 

Thank you, putting this into savings is a great idea. I can technically afford it if I want to buy it, I am sometimes told I am making things hard for myself not ever making use of finance, e.g. most people get cars this way etc, but I am assured by the replies here that most of the time it’s the best choice not to do so as you just pay twice as much! Also good point about the actual savings, it is a drain on my bills as it’s old and doesn’t have short cycles, but I did work out a new one would take 5years at least to pay for itself.

Short cycles are generally less efficient than long cycles, they also tend to not wash as well as longer cycles. Using finance that is free, or at the least very cheap can be beneficial, using finance that costs money is generally only sensible for mortgages, almost everything else does not make sense. Many people do get cars that way, I and many on here will regard those people as very daft, they are buying a depreciating asset on high cost finance. Now they may decide that having a new car every three years to show off to their friends is a good use of money, but as they are buying it on finance they cannot really afford it and their friends are likely to be aware of that and the additional costs of finance make it an even worse deal.

bamme89 said:

May I ask (as a newb to any sort of credit) in what contexts would you ever find a vendor or company offering interest free credit? Like, what would be the payoff to them of offering this? 

Some do it to get sales where they would otherwise loose out to competitors, Ford did it several years ago, three years free finance on their cars, their sales went up significantly, other times for retailers the cost is not huge, it might only be open to those with very good credit reports so the cost of finance is low as those customers present little risk, other times a manufacturer will underwrite it to boost sales etc. Credit cards will do it with 0% purchase offers as they get interchange fees and gain new card holders and some of those customers will also carry a balance beyond the promotional period. Others may just have a higher upfront product cost. Regardless it is all factored into the cost of them doing business. 

bamme89 said:

Also completely separate question but does ‘variable’ means they can put the interest rate up any time they want? 

Not any time they want no, it will normally be linked to BoE base rate, it could rarely be linked to something else, it does not hugely matter, 29.9% interest is an awful deal. 

Wow this is all so helpful. Thank you!! Feel like I am getting financial lessons that I missed when I was younger. Really appreciate the in-depth response to my very basic questions thank you.

Richard1212

There are usually stacks of 0% finance deals available if you google. Many folk use this option without a second thought. Have a look round using google + washing machine+ 0% finance.

Nothing to do with 0% finance but I have never bought a TV in my life as I like to swap and change as newer models become available or I just get fed up with the couple I have -----and I like a dedicated repair facility available immediately ( no waiting to find a repair man) if I ever need a repair ( though I usually would just get a brand new TV if anything went wrong with the existing one). 

There's room and sense for all methods of purchase , according to your tastes and financial position----buying outright;   special offers of long repayments at 0% ; short 0% payments over 4-6 months ( often a favourite of Paypal) ;  renting ;  HP.

So long as you don't pay silly interest rates of 29% or whatever, there's room for all options ---and plenty of offers for your own circumstances/preferences if you google around. 

marcia_

bamme89 said:

prettyandfluffy said:

If you are eligible, you could join Costco - the online only membership is the cheapest.  We got a very good deal on a washing machine from them.  Pay on a 0% credit card and pay it off within the 0% period plus you have S75 protection.

Actually I am a member! Thank you! What is S75 protection?

https://www.moneysavingexpert.com/reclaim/section75-protect-your-purchases/