Borrowing money, costs money

Installment purchase

Purchasing on installment means that you immediately receive your purchase as a buyer, but you do not have to pay the purchase price immediately; you can pay it off in pre-agreed terms. A godsend when it comes to a large (unexpected) expense and you are unable to pay the purchase amount in one go. “Buy now, pay later”. What are the pros and cons of installment buying? Financing a large purchase for home improvement with a personal loan provides tax benefits. Buying on installment does not give a tax advantage.

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"Buy now, pay later"

The slogan “buy now, pay later” sounds appealing. This loan form, deferred payment, was often offered by car dealers to finance your car . Nowadays, (web) stores in household appliances advertise this way of buying. You can replace your broken television or dryer without immediately paying the usually high amount. A deferred payment. A great solution if you need a new device quickly, but what are the pros and cons of this loan form?

Installment purchase

  • Instant enough money to complete the purchase
  • High interest rate (usually 14%)
  • High total amount
  • A high interest amount for long periods

Personal loan

  • Instant enough money to complete the purchase
  • Fixed low interest from 3.5%
  • Fixed monthly costs
  • Extra repayments without penalty

A loan instead of deferred payment

The reality of buying on installment is therefore less beautiful than is suggested. Taking out a loan for your loan purpose instead of “buy now and pay later” is a cheaper solution. If you want to borrow the purchase amount of the product, you can take out a Personal Loan at a fixed low interest rate of, for example, 3.5% with a loan amount of € 25,000. That interest is a lot lower than the interest that is charged when buying on installment; it saves about 10%!

With a Personal Loan, you agree on a date when the loan must be fully repaid. This way you know which costs you will pay monthly. So you can still buy your product directly and you can borrow at a much lower interest rate with conditions that are more favorable.

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Kitchen on demand

A product that is often offered for installment purchase is a kitchen. If you want to finance a new kitchen and you use a Personal Loan for this, the interest costs are tax deductible. This applies to all interest costs that you have to pay for a loan that you take out to improve your own home. This tax break may even allow you to have your kitchen and bathroom remodel done at the same time instead of having to make a choice. Or you use your tax benefit to repay extra penalty-free every year so that the loan amount becomes lower and the term shorter.

Buying a kitchen (or bathroom) on installment is a lot more expensive than borrowing the required amount because of the high interest when buying on installment. In addition, the interest costs of installment purchases are not tax deductible .

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