All too often people fall into the trap of low easy monthly payments and never stop to think, “Hey…why are they so eager to help me out?”. The reason people want to make things easy for you to make payments on is because they make tons of money off of your willingness to make a payment instead of paying the full price up front. For example people who rent-to-own furniture really are doing themselves a disservice by purchasing something via payments.
If you walked into any place here in the United States that offers such a service, you would find a showroom of nice looking couches, highly polished dining room tables, and large flat screen televisions. Each item has a price tag on it that shows what the WEEKLY payment would be. If you wanted to buy a couch and loveseat you would see that the payments are only $29.99 a week…… for 78 weeks. That comes out to $2399.22 in total.
Courtesy of rentacenter.com
But what if you just bought the sofa and loveseat outright? The fine print reveals that the cash price is $1399. That means that a cash purchase would instantly save you $1000 on the sofa set. But what is worse than that is these rent-to-own places are charging top dollar for all of their merchandise. If you saved up your money and shopped around you can easily find the same exact living room set for $993.96!
Courtesy of 1stopbedrooms.com
So let me reiterate the point that I am making. They are taking something they can sell at a profit for $993.96, marking it up to $1399, and then “helping” you with 78 weekly payments which come out to $2399.22. The only other industries that have those kind of margins are illicit drugs and human trafficking! In this particular example if you were to pay cash it could save you from overpaying $1405.26 on the same exact livingroom set.
Other places that tend to hide behind the guise of being helpful with low easy payments are the used car industry. Especially the buy here pay here people. Just incase you are unfamiliar with what a buy-here pay-here operation does I will explain how it works. Typically they are small used car lots that offer in house financing on all of their vehicles. A person walks onto the lot and a guy wearing a yellow and green plaid suit coat comes out and tells you he has the deal of a lifetime for you. If you just give him $1500 down, and pay $350 a month for 3 years, he will guarantee you financing on this car. All you need is 2 pay stubs and you can drive home in this crap bucket…errrr uh, I mean cream puff.
So how does this work? How can they finance warm body that walks onto the lot? It all starts with the type of car they are selling you. Generally speaking, cars found on these lots are what has been deemed too junky to sell at a big dealership. It has too many miles, or it’s been in too many accidents, it has been in a flood, etc. Big car dealers take cars in on trade in order to entice their customers into a new car. Then the big car dealer turns around and liquidates all the shoddy inventory at an auction.
This is where our friend wearing the yellow and green plaid suit coat comes in. He “specializes” in inventory that other dealers won’t touch and puts it on his buy-here pay-here lot. The dirty little secret is he’s buying cars for as cheap as $500 at these auctions, getting them to appear roadworthy and putting them out on for sale with “WOW only $1500 Down” painted on the window. So by the time the customer pays the down payment and makes a couple monthly payments the buy-here pay-here guy has broken even. What he makes on the remaining payments is 100% profit.
I really hope you enjoyed reading this as much as I enjoyed writing it for you. If you have any questions or comments feel free to contact me via the email address provided. Also If you would like to have more money savings tips like the one you just read be sure to join my mailing list by clicking here. Thanks for reading!
I am a happily married father of 1 beautiful little girl. I am originally from New York/Pennsylvania but currently reside in the great state of Florida. The reason I created this blog is because for a long time I noticed that I think pretty different about money and what it means to be successful.