Paying in full vs 0% interest installments

[darrelelliott]

For people that are moving into a new home and want to make some high value purchases i.e. Refrigerator, washing machine, water dispenser, couch, mattress, furniture. If you already have the full amount within your means but sellers may offer a mode of purchase by way of installments with 0% interest.

Considering the time value of money (money is more valuable today than tomorrow). Is taking the 0% interest installment plan always better than paying upfront in full for high value purchases if both amounts add up to the same total?

 

[kimberl321]

@darrelelliott For me 0% interest is always better.

I don't want to part with say rm20k suddenly and take few mths to build them back up.

I rather part with rm20k within 24mths and still have cash on hand for emergency or even to put into investment that has dividend or value increase potential.

 

[darrelelliott]

@kimberl321 Agreed. Just wanted 2nd opinions in this matter.

What investments would you recommend now? I’m not quite knowledgable yet so I keep 3 months expenses in my current and park everything else in my ASB

 

[wingnut0731]

@darrelelliott Stashaway Simple is now giving 4.1% annually and you can withdraw any time, I think it’s a safe and decent play

 

[frankel56]

@darrelelliott Put it inside epf

 

[darrelelliott]

@frankel56 Good long term investment but not liquid. So if suddenly need to pay out unexpected expenses, it’ll be a bit of a pickle to manage. Maybe when I have more disposable income I’ll park more there

 

[resjudicata]

@frankel56 Found Anwar reddit account.

 

[frankel56]

@resjudicata Lol. Ok. For sure you cant take it out til later, but then, if youre an accountant youre gonna figure out that the management fees are lower than everything else in malaysia… (asb is 0.35, epf is 0…) well… time will tell…

 

[1fish]

@darrelelliott My personal rule about 0% interest instalments is I'll only use it for something that I NEED to pay anyway. But I try to limit it to 6 or 12 months.

E.g. car insurance, tires, and yes high value home appliances that I can't live without (aircond, washing machine, etc). I won't spend it on furniture though; I can always get cheap ones until I can afford to get something nice.

I don't want to use 0% instalments as an excuse to spend on things that I want but not need, like the latest gadgets or entertainment stuff.

 

[darrelelliott]

@1fish Any specific reason you limit to only 6 or 12 months? In theory, wouldnt the further you drag it out more, the less valuable the loan becomes due to time value of money so it favors the buyer side?

I’ll keep in mind on the furniture part. Any tips on furniture hunting for good quality 2nd hand?

 

[1fish]

@darrelelliott Oh just my preference. My industry gets pretty volatile so I hate long long loans

 

[jjwigal220]

@1fish I also like to do this kind of 0% installment within a year. For any installment need to have quite discipline on payment and normally i will do auto payment to avoid late payment and interest charges.

 

[dylan4512]

@1fish It’s possible to pay car insurance using 0% interest instalments? Is it like merchant specific or have to call the bank to convert it to EPP?

 

[1fish]

@dylan4512 I believe it’s merchant specific.

 

[dazza_73]

@darrelelliott Is taking the 0% interest installment plan always better than paying upfront in full for high value purchases?

In theory, yes. However, it's best if you calculate out the cost of the entire purchase and check if you already have this sum in the bank. Then, if you break it down to 12/24 months, how much per month is that? If you do not have wide enough safety net, how confident are you in servicing this "loan" for the next 24 months?

Personally, I would not resort to installment purchases, whether 0% or otherwise cause I am personally more risk averse and I dislike having too many financial commitments that I need to look to pay every month. Paying one off eliminates that worry instantly.

 

[darrelelliott]

@dazza_73 Sorry I should have prefaced this by saying the total amount of installments would be equal to the lump sum payment and that like it or not, I would have to make this purchase anyway. I’ll edit this in.

Would you say that at this point it boils down to preference but ultimately if the total amount is the same then installments make more sense from a financial perspective?

 

[polygon]

@darrelelliott

from a financial perspective?

how much can you save/make by doing this?

I just buy second hand and save a fortune

 

[darrelelliott]

@polygon Do you have a certain criteria for items that you would buy second hand? I would think furniture definitely saves buying second hand with little to no drawbacks

However I’m a bit more cautious about electronics and appliances as I dont want the headache of any subsequent costs to repair so I always buy those new

 

[polygon]

@darrelelliott Normally allow full depreciate after 8 years

So go with that

Ask the shop if they have tarik balik items, usually good bargain and almost new

 

[dlkoch]

@darrelelliott

1. Make sure you have enough money to buy it in the first place, and also enough money to pay instalments
2. Put the full-cost of the product in FD or whatever investment for the instalment period
3. Profit