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The Financial Pros & Cons Of Buying Things In Installments

  • July 20, 2021

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What does it mean if you buy things in installments?

Instead of buying something all in one go, you break it up into smaller payments. This is typically on a monthly basis, though you can also get some installment plans that pay every three months, six months; whatever. The point is that you don't pay the full price for a product right away, it is paid over a longer period. 

The question is, should you pay for everything in installments? Right away, you can see some benefits to paying for things over a longer period instead of all in one go. Well, the short answer is that you shouldn't pay for everything in installments! It simply isn't a wise financial decision as there are some disadvantages of doing it. With that being said, certain purchases are better when you split them up. 

Today, you'll see the financial pros and cons of installment payments, so you can start understanding when it's a good idea to use this method, and when you should just pay in full. 

Pro: Easier to factor into your budget

A huge advantage of paying in installments is that you can factor them into your budget with ease. Instead of dealing with a huge chunk of cash leaving your account in an instant, you will have smaller chunks leaving periodically. You can then look at how much you have to pay and make adjustments to your budget as you see fit. In a lot of cases, it is easier for you to afford a purchase like this. Losing lots of money in one go can make your budget fall through the ceiling and come crashing down. You don't have enough money in your account for a few months until things start getting back to normal. 

Con: Can sometimes be more expensive

Depending on how you pay for the product, it can be more expensive to use installments instead of buying it all in one go. This is because some finance methods will charge interest rates and additional fees that set your purchase at more than its original price. Typically, this happens when you take out a loan for the purchase, though other finance methods can also work. It really does depend on how you are purchasing the product and where you're purchasing it from. Some websites will let you split the payments across a few months with no interest fees at all. Just be aware that you can sometimes pay more for something just by option for this approach. 

Pro: Helps you buy expensive essential items

Another financial benefit of installment payments is that it lets you buy things that would otherwise be too expensive for you to purchase. More to the point, you can buy essential things that you need in life. Two examples of this are houses and cars! Head to a mortgage broker and you will be able to get a loan that basically lets you pay for a house in small chunks every month for many years. This makes housing more accessible as most of us can't fork out hundreds of thousands of dollars all in one go!

The same goes for cars - another expensive purchase that we deem essential. Some of us can't afford to spend a few thousand dollars in one go for a car, yet we need one to transport our family around. Nowadays, places like Bokan Auto Center offer car finance options that let you pay in installments. Again, you have access to something that you wouldn't be able to afford if you bought it all in one go. 

Con: Can be bad for your credit score

As a financially responsible adult, your credit score should always be at the back of your mind. A credit score is crucial as it deems if you are creditworthy and tells companies how responsible you are with your money. You need a good one to be approved for mortgages and loans, but companies also check it when you are applying for subscription services. For instance, if you are getting a new smartphone, the provider will want to check your credit score to be sure you are capable of paying the bill every month. 

The problem with installment payments is that they can be bad for your credit score. However, there's a big caveat here, this is only the case in certain scenarios. Failing to make payments on time will give your credit score a hit, but having lots of installment payments for different things also harms it. It shows you're taking too much credit and have lots of debts to clear, which will make your score suffer. Nevertheless, it's not all doom and gloom, as the final point explains. 

Pro: Can be good for your credit score!

Yes, paying in installments can be beneficial for your credit score when you do things correctly. For instance, you need to make your payments on time every single time. Don't miss payments and it shows credit companies that you are capable of paying things on time and can be trusted. 

Similarly, don't pay for too many things using this method. Avoid financing too many purchases with loans to reduce the amount of credit you borrow. This prevents your score from being negatively impacted and ensures that you get the benefits from paying for things on time every month instead. 

Conclusion: When should you buy things in installments?

In summary, installment payments can be good and bad - it depends on the situation. Generally, paying for things in full will be the best approach to making purchases. The best time to utilize installments is when you are buying something very expensive and it will have a huge financial impact if all the money left your account in one go. Houses, cars, appliances, educational courses, and even home repairs are all great examples of where splitting the payments makes sense. 

Finally, be cautious about how many things you finance in one go. Ideally, it is better to pay one off before adding others, so you protect your credit score.