Recently, my son was planning to make a $650 purchase. The dealer offered a $50 discount for full purchase or “same as cash” payments for eight months. He asked what I thought he should do and was surprised when I told him to do both.

When he said he had ample savings (beyond emergency needs) to buy it outright, I told him that he should take advantage of the $50 discount and then pay himself back at the full price in eight monthly installments. That way he comes out ahead, getting the item he wants – and making a $50 bonus.

It’s just one of the advantages of having available savings, and the discipline to pay yourself back. Has anyone done this before?

Bill

I'm not sure I follow. You're saying he should pay in full, and then put $X into his bank account every month? I guess I do this all the time. When I bought my car insurance, I used to set $X aside every month, so that, the following year, I could again pay in full. This is better than paying 10% interest on the payment plan. With our car, we used to set aside what our payments would be. But, now I just use a monthly budget that includes savings. I've predetermined how much I need for things like retirement savings, car insurance, and so on.

My rationale for taking the $50 discount is that 5% * 650 = $32.50. And you aren't going to get 5% in a six month period -- you'd get more like 2.5%, which is more like $16. So he's way better off taking the discount.

Yes, but the $50 savings deal is even better because he's not going to lose the 5% for the whole 6 months either. If he puts the $80/month back into his savings, he'll earn interest on each $80 payment. So each month his "payment" will earn even more interest, so he'll lose even less of the $16 or so. He wins again!

You often see these types of deals about Buy now, pay later. Lately it seems like more of them are offering discounts also. I purchased a computer while in college from Best Buy and got 10% off if I used their no interest for 12 month plan. So instead of paying it all up front, I opted for the plan, took the discount and then made the minimum payment of $25 a month for the first 11 months.

After 11 months I sold the laptop on ebay and used the money I made on the sale to pay off the remaining balance of the computer. I spent $275 for the computer and used it for a year. Having said all that.. I COULD have paid off the computer at anytime as I had the money set aside for that purpose. But it was earning interest for me in a money market account instead of earning money for Best Buy. This also only worked as the laptop retained most its value even though it was used...

I wouldn't feel comfortable taking this type of risk if I didn't have the money in the first place. But, if you do, why not take advantage of the offers?

Back when I had poor money skills, offers like this were just trouble for me. If I had tried to "do both", I would have ended up carrying a debt in the long run because I didn't have the discipline to do what you're describing. Lately, though, these sorts of offers have seemed tempting. Fortunately, I don't need to purchase anything major, so I haven't had a chance to test my new-found willpower...