The real cost of buying in installments

Installments make buying easier, but the quoted interest does not always tell you what you really pay. The difference comes from how the interest is worked out.

Flat interest and real interest

Most installment offers charge interest on the whole amount for the whole term, even after you have paid part of it back. That makes the real yearly cost much higher than the quoted rate, and it can come close to double.

An example

A device costs 20,000 pounds, paid over 12 months at a flat 20%. You pay 24,000 pounds, or 2,000 pounds a month. But you did not keep the 20,000 pounds for the whole year, since you paid part of it back every month. The real cost here is about 35% a year.

What to ask about

• The total you will pay, not only the monthly payment.
• The down payment, admin fees and file opening fees.
• The late payment fee, and whether you can pay early and at what cost.
• Whether the cash price is lower than the zero interest installment price.

The installments calculator in Geneh works out the real cost of any offer and compares it with paying cash.

This guide explains how things work and is not financial advice. Check the current numbers in Geneh before you decide.