Deferred Payment Calculation: The Real Cost of Installment Shopping
In shopping where there is no "interest-free" installment opportunity, paying a deferred payment (term difference) is often necessary. Our deferred payment calculator shows the difference between the installment price and the cash price, highlighting your monthly interest burden.
Key Terms
Fundamental concepts you will encounter in installment shopping:
- Cash Price: The simple price of the product for one-time or cash payment.
- Installment Total: The final amount paid to the bank after the deferred payment is added.
- Deferred Payment (Term Difference): The additional cost incurred by spreading the payment over time.
- Monthly Interest Rate: The percentage of interest applied to each installment period.
What Are These Terms?
Cash Price
The price paid at the time of sale, containing no financing costs. This is the most economical method of purchasing.
Deferred Payment Amount
Calculated by subtracting the cash price from the total installment price. This amount is the "service fee" you pay the bank or seller for getting the product now and paying later in parts.
Monthly Interest Rate
Determined by credit card providers or store financing. The higher this rate, the more your total repayment increases. It usually follows maximum rates set by central banking regulations.
How Does The Tool Work?
Calculation Logic
Our tool uses standard installment algorithms to generate the following data:
- Total Repayment: Calculates your total debt based on the interest rate and the number of installments.
- Difference Analysis: Subtracts the principal (cash price) from the total repayment to find the net cost of deferred payment.
- Unit Cost: Analyzes how much interest is added to each individual installment.
Step-by-Step Guide
- Enter Amount: Input the cash (base) price of the product.
- Select Term: Specify how many installments you plan to make.
- Define Rate: Enter the monthly interest rate applicable to the transaction.
- View Results: Instantly see how much extra you will pay in total and the exact amount of your monthly installments.
Real-World Examples
- Electronics Purchase: If you are eyeing a $2,000 laptop with a 2% monthly interest rate over 6 months, calculate the total cost to see if it fits your budget.
- Furniture Installments: Compare the total deferred payment for 12 months against a potential "cash discount" to see which is more advantageous.
Pro Tip: If the total deferred payment amount is less than the discount offered for cash payment, installments might be logical. Otherwise, paying cash is always more profitable.