The Real Cost of Buying Now and Paying Later

Credit creates a repayment promise. Some offers charge interest, some charge fees, and some charge neither. Read the actual offer before deciding what it costs.

Suppose an item costs £180 cash. A practice credit quote requires a £30 deposit and six payments of £28. Interest is included, with no separate fees. The payments total £168, so the purchase costs £198 altogether. That is £18 above the cash price.

Do not add interest again when it is already included in the payments. Add any deposit and required fees paid outside them. If a quote instead gives the amount borrowed and total interest, add those, then any separately paid purchase deposit and fees not already counted. The deposit is part of the purchase cost, not repayment of the loan. Count each cost once.

Check affordability as well as total cost. Every required payment must fit alongside other needs. A low total does not make an unaffordable payment safe.

Read both the payment amount and the payment count. Include any deposit and fees outside the payments when comparing offers for the same purchase.

Suppose one offer requires twelve payments of £32. Another requires twenty-four payments of £19. Both include interest, with no deposit or separate fees. The first costs £384; the second costs £456. The second monthly payment is £13 lower, but its full cost is £72 higher.

This does not mean every longer plan costs more. Different rates, fees and offers can change the result. Calculate each total from its own terms.

A longer plan may make individual payments easier to afford while raising the full cost. Check both the payment schedule and the total, rather than deciding from either one alone.

An annual interest rate is expressed as a percentage for one year. A card's cash interest charge also depends on balances, dates and terms. Added interest may attract interest later.

For a stated one-year simple-interest calculation, an unchanged £250 at 12% produces £30 interest: £250 x 12 / 100. That calculation does not predict a card bill with changing balances or interest added during the year.

If a card offers a purchase grace period and you meet its conditions, paying the full statement balance by the due date can avoid purchase interest. Check those conditions. Cash withdrawals, fees and carried balances may follow different rules.

The minimum is the smallest required payment by the due date. Its interest share varies. Use the statement's figures instead of assuming that most of every minimum payment is interest.

Payments reduce what is owed, while interest, fees and new spending can add to it. Use figures from the same period and count each charge once.

Start with the opening balance. Add new spending, interest and fees, then subtract payments to find the ending balance.

Suppose £350 is owed at the start of a year. Interest adds £42, fees add £8 and payments total £140. There is no new spending. The ending balance is £350 + £42 + £8 - £140 = £260. Payments totalled £140, but the balance fell by £90 because charges added £50.

For a comparison, use each plan's stated charges and payments. An annual rate alone does not supply the exact future interest when balances and payment dates change.

Debt consolidation uses a new loan to repay existing debts. One payment to manage does not by itself mean a cheaper loan.

Compare the remaining payments on existing debts with the new loan's full payments and separate fees. Check repayment time, affordability and any charges for ending the old loans early.

Suppose the old debts' remaining payments total £900, including all charges. A replacement requires twenty-four payments of £38 plus a £30 fee. Its payments total £912, making the full cost £942. In this practice comparison, replacement costs £42 more. There are no early-repayment charges on the old debts.

New spending on cleared cards creates debt again. Someone unable to meet required payments can seek qualified debt advice rather than assuming another loan will solve the difficulty.