Splitting a purchase into instalments reduces what you pay today, but not necessarily its total cost. Several small instalments can also accumulate and take up money in future months before those payments even begin. Your decision should be based on the total cost and your future ability to pay, not only on the advertised instalment.
Check five details before accepting
Confirm the cash price, the number and amount of instalments, interest or APR, fees, and the total amount repayable. Check what happens if you return the product, repay early or miss a payment. Keep the pre-contractual information, and do not assume that “interest-free” means cost-free.
The Bank of Spain reminds consumers that financed purchases should be included in the budgets for the following months. Record each instalment as an obligation until its final due date.
Test your budget
Simulate the next three months, including all existing finance agreements. Ask whether you would still be able to pay for housing, food, bills, minimum savings and a reasonable unexpected expense. If you depend on new debt to cover essentials, the purchase does not fit, even if the instalment looks small.
- Compare the option with saving before buying.
- Avoid financing something for longer than it will be useful.
- Do not use your available credit limit as a measure of affordability.
- Check your statement and activate payment alerts.
Keep track of the full balance
Paying only the minimum on a credit card can extend the debt. Find out how long repayment would take and what it would cost with different payment amounts. If you have several finance agreements, add them to your debt inventory and choose a priority.
Kinset can identify recurring charges and show how much instalments weigh on the month, but the terms must be checked in the agreement and in the provider’s statement.
This content is educational and does not recommend any form of credit.