Breaking the Monthly Payment Mentality

Local car dealerships have been running a blitz of advertisements here in my local town over the last several weeks in an effort to move inventory before the end of the year.  One thing I detest about car advertisements is the notion of “affordable payments.”  As if the final cost of the automobile is irrelevant.  What matters is whether or not buyers can afford the monthly payment.

And this monthly payment mentality is not limited to the car-buying business.  Blue Hippo computers has gotten in on the act, too.  A fellow blogger recently posted about Blue Hippo computers, a company that “helps” people “afford” computers by offering a monthly payment plan.  In fact, Blue Hippo is selling inferior, over-priced products through some sort of bastardized layaway or rent-to-own plan.  Here’s an excerpt from his article; first a message from the Blue Hippo site, and then his comparison:

Unlike other financial companies, BlueHippo® doesn’t check your credit and measure you based on some score. Since we don’t check your credit, we do ask that you build a credit history with us by paying a $99.00 initial fee, followed by 52 weeks of consecutive layaway payments of $39.99. After 13 weeks we can then offer to finance the balance of your purchase price, order your computer, and have it shipped directly to your home via UPS or FedEx. It’s that simple!

After reading this, my first question was “So how much do you pay for the laptop?”. Based on the above, assuming you use their layaway program, you’ll pay $99 + (39.99 * 52 weeks) = $2178.48.  I’ve read that the $39.99 is for the desktop and that the laptop is actually $49.99 for 52 weeks making the laptop $2599.48.

As he points out later in the article you can get “a faster processor and double the hard drive space” at a site like Dell.  So why would anyone even consider doing business with Blue Hippo?  Because they offer a monthly payment plan.  That’s it.  Forget the fact you will pay many times the cost of a comparable computer.

The only way to win at finances long term is to break this monthly payment mentality.  With the exception of large expenditures such as a house, just about everything else in our life can be paid for in full, up front, at the time of the purchase.  Doing so may change your ownership time line, but there is nothing wrong with delaying gratification for the satisfaction of avoiding a new debt.

Next time you are considering a large purchase and considering a monthly payment option, inspect the terms of the deal.  Chances are you will be paying much more for the opportunity to make payments rather than paying in full on the day of the purchase.  Trust me, stores, car dealerships and banks are not doing you any favors for offering monthly payments (plus interest) for many months, despite how nice their advertising sounds.

Comments

  1. Well said. I especially appreciate the line, “there is nothing wrong with delaying gratification for the satisfaction of avoiding a new debt.” So true.

  2. This post is very timely. I’m in the market for a new serger (a type of sewing machine), and I contacted the dealer to get a ballpark idea of how much the serger I want costs, so that I can start saving up for it. They were quick to offer me 12 months of equal payments on a $2,000.00 serger. I thanked them for the information, and told them that I probably wouldn’t be buying for at least a year, as I planned to pay cash, and that I was just doing some research ahead of time. They then offered me a used serger for $600.00, also with 12 months of equal payments. I can’t help but wonder what my “cash price” would be, if I saved up for it and had the money up front. I’m sure they would cut me a deal. Even though it appears that they are offering me no-charge financing, I’m sure they have just built the cost of the financing into the price of the machine.

  3. I agree 100% Can’t get ahead if you’re living on monthly payments! My wife and I just bought a new used car – and paid cash. No monthly payments is the way to go!

  4. Wow, that’s insane! You could pay yourself the same amount ($99 initially and $40 per month) for a year and pay cash for a decent $500 laptop.

    The cost of electronics has really fallen over the years, and IMHO, nobody needs a $2k computer. It’ll be outdated in a few years anyway.

    • You are on the right train of thought, but there is no such thing as a decent laptop for under $1700.00 unfortunately. I have been shopping for 2 years now and the only configuration worth having is up there in price. Seems that you get 1/3 of what you pay for…

  5. This type of thing (and the rent-to-own chains, of which two have stores within a mile of my house) are just like the lottery, in my opinion – they’re for people that can’t do math.

  6. The sad part is that it is not that great of a computer: a better computer at Dell might cost you $500. So, if you put aside $50/week, you would be able to pay cash for a better computer in less three months. What does it say about consumers if they can’t wait 10 weeks to buy a computer and would rather be gouged for an entire year. As for printers and the other “extras” they almost give them away at most Wal-Marts and computer stores as they make most of their money selling the ink for the printers as opposed to the printers ;)

  7. YES! Someone else is preaching the gospel! Why pay someone else a payment, pay it to yourself and buy what you want. And yes, I do practice what I preach, even if it means driving the clunker another year until I’ve got enough for a better car.

  8. Unfortunately, many are missing the point that schools are now requiring that their students have computers and hand in printed assignments rather than handwriting them. When caught in a position of having a fixed income and requiring a computer in the home, then the family is left with few choices. Unfortunately, these sorts of companies prey upon people in this situation and would rather take advantage of them as opposed to actually giving them at least reasonable terms to finance with. Buying a used computer from a friend or local store would be better or just save for a little while and buy a very inexpensive one from DELL. Heck, they now have those Inspiron Mini machines going for as little as $349 (or $299 when on sale)!

    Now, to play devil’s advocate for a minute, the company does require the $99 down/$40 per month for 13 weeks because that will cover the cost of the computer itself. Keep in mind that Blue Hippo is catering to a demographic that is KNOWN for not paying their bills (hence the “no credit check” policy) so they have to at least cover their inventory and operating cost in order to stay in business. They want to make sure they have some money before the person gets ahold of the computer and stiffs Hippo for the rest of the payments. It all boils down to a numbers game.

    By the way, to Alissa and those who think that way, some stores do actually give you 0% financing for 6-24 months. Many times it’s not a scam or anything. They just like to move inventory and it is a good method of doing so. When the wife and I recently went shopping for a washer/dryer, JCPenny was offering 0% for 12 months. They didn’t raise the price of the units to incorporate the financing costs as they were on sale for a couple hundred off already. They just wanted to move inventory and since the store has its own corporate financing entity, it doesn’t really cost them much anyway.

  9. In rereading the conditions, I now realize that it is even more slimy than I originally thought. If instead of paying $50/week to Blue Hippo, you put this money aside in an envelope, you will have enough money in 13 weeks to buy a better computer. You then save 40 weeks of payments that can be used for other things or for putting money aside in an emergency fund.

  10. Companies like Blue Hippo, Payday loan companies, rent-to-own etc really bother me. They survive off people who have limited choices available and in some cases have to buy something now rather than later (i.e. refrigerators,ranges, etc) They also survive off people who are not always the sharpest knives in the drawer and sometimes just don’t understand that other options are available. I think it is highly unethical to rip people off this way. My concience would never allow me to work for companies such as these.

  11. I’m not going to defend the extortion-like rates that companies use to take advantage of the desperate but…

    Sometimes, it does pay to take advantage of good financing when it’s available. Last year, Dell was offering a 0% financing promotion on new laptops. We bought a computer and paid it off in 8 or 9 months. In the past, we’ve done the same thing with furniture.

  12. if you are on a low income and have bad credit, it will help build your credit and condition you to get another loan for something else and pay it off so in the long run it is helpful to you

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