Pay in Instalments or Pay in Full? How to Decide

An instalment plan can look cheap because each payment is small. The right question is what the plan costs in total, and what you would do with your cash if you did not spend it.

Step 1: find the true cost

1. Multiply the instalment by the number of months.
2. Add any processing fee, insurance or down payment.
3. Subtract the cash price. The difference is what you pay for the credit.

Divide that difference by the cash price and by the years to get a rough yearly rate. Use the EMI calculator for an exact figure.

Step 2: compare with your alternative

• If you pay cash, can you cover your emergency needs for the next months?
• Is your savings or investment return higher than the yearly rate of the plan? Rarely it is.
• Is the plan free of markup? Some shops offer this for a short time, but check the cash price is not raised.

Warning signs

• A price "per month" without the total.
• A large fee at the start.
• A penalty for early settlement.
• Late payment charges that are high.

A simple rule

If the plan costs noticeably more than cash and you can pay without hurting your safety fund, pay cash. If the plan is free of markup, or you must keep the cash for something more important, instalments can make sense. Compare offers with the loan comparison calculator. This is general information, not financial advice.