The Real Cost of Buying Now and Paying Later
Credit turns one price into a stream of payments plus interest. Work out the total repaid rather than the monthly figure, and see what paying only the minimum does to a balance over a year.
What a learner can do afterwards
- Work out the total repaid under a credit offer and compare it against the cash price
- Explain what an annual interest rate means for a balance that is not cleared each month
- Show what happens to a balance when only the minimum payment is made each month
1 · Read
Credit turns one price into a stream of payments plus interest. The monthly figure tells you what leaves your pocket now. The total tells you what the item really costs, so always multiply the monthly amount by the number of months.
A 25 a month deal over 18 months costs 450 in total, while the same item at 400 cash saves 50. When a shop offers deposit plus monthlies, add the deposit to every payment and hold that total next to the cash price.
An annual interest rate is the yearly charge on money you still owe. Near 20 percent, an unpaid 500 balance grows by about 100 across a year even if you buy nothing new. Paying in full each month avoids that charge entirely.
Paying only the minimum covers mostly interest, so the balance barely shrinks and the debt drags on for years. Paying more than the minimum, even a little more, cuts both the total repaid and the time in debt.
Judge every offer by its total repaid, watch the rate on unpaid balances, and pay above the minimum.
2 · Watch
Take it off screen
Where it sits
This opens up
Where this leads
Jobs that lean on this skill. Follow one to see everything it is built on.
8 questions wait behind this lesson, each with its answer explained. Every answer feeds the sky: stars light as they are learned, and dim when it is time to come back.