The hidden price that we never realized.

  Hello everybody! In this era of globalization, we are able to get lots of stuffs from different paying method nowadays. Ranging from the classic cash payment to the advanced yet convenient payment methods such as credit card and flexible payment method, we can imagine how easy it was for us now! Nonetheless, here comes the trouble when we realized that we had overpaid for the stuff by paying credit card interest rate monthly or weekly installment rate for the flexible payment method. Why it will be like this? Why we eventually must pay an exorbitant price compared to cash payment if we opt flexible payment method or credit card payment method?

Hidden fees...

Source from this website: http://www.thestar.com.my/business/business-news/2016/04/09/if-its-too-good-to-be-true/

  Last week, I read an article on TheStar newspaper which entitled “If it’s too god to be true…” written by Datuk Alan Tong. As we able to clearly see that he is one of the properties experts in Malaysia. This is due to him before that was the world president of FIABCI International for 2005/2006 and awarded the Property Man of the Year 2010 at FIABCI Malaysia Property Award. He is also the group chairman of Bukit Kiara Properties. In this article, he will like to expose to us about the hidden prices in the market that we never met before.

  He used television set as an example to show us regarding the hidden prices in the flexible payment. By looking thoroughly into the article, we can see that the lady in the picture thinking that the television set is very cheap in the flexible payment plan. However, on the other hand, the salesman thinking differently that he can make more profit from the lady as the sum of weekly installment paid by the lady will be more than the original retail price. Therefore after we doing comparison of the cash payment method as well as flexible payment method as mentioned in the article, we can deduct that cash payment method is much better than the flexible payment method.

The picture in the article

  Why did I say so? This is because although cash payment method just discounted about 22% from original retail price (RM4999), but however it is quite lower than the price of flexible payment method after sum up the weekly installment in that payment (as mentioned in the article.). The cash purchasers were offered about 22% from the retail price which is RM3899. Later, there was a special price for the television set under its flexible payment plan was RM2739.30, apparently a massive 45% discount from the retail price. At first glance, the flexible payment plan was the best deal, but the deal appears too good to be true when we detailed into it. So, let’s do some calculations into this payment plan in order to figure out its actual price.

   The weekly installment was RM26.72 for a total of 5 years under the flexible payment method. However, the things going to horrified as the price would end up to be RM6947 instead of RM2739.30 upon last payment…  There is huge difference between a cash purchase and the flexible payment method since the total amount paid for the installment plan is 78% higher than the cash payment which after being discounted for 22%. Besides, the effective interest rate per year for the financing of 5 years is 45% (Damn high isn’t it?).  That is the huge difference between these two payment methods.  So it’s better for us to use cash payment method if we able to fork out the money to buy the stuff. In contrast, if we didn’t have enough of money, don’t compel yourself to buy the item by flexible payment plan as it end up will cost us higher than the original price.

  Meanwhile, on the separate matter, he also recommends us to spend on assets rather than the depreciating items. As we all know about that, all the assets such as investments and properties will have potential value appreciation. The depreciating values of these assets are rarely seen… Moreover, there is lower interest rate in the assets as the calculation method of interest rate is based on reducing balance method. Furthermore, the effective rate for a housing loan is as advertised… Well, let’s imagine if we can channel the money spent on depreciating items to assets, definitely our money would have grown and helped to improve our financial position. Therefore, we able to learn that spending on the assets are way better than spending on depreciating item as the depreciating item we buy today would not have much left after it was being replaced by more advanced technology products…

  Speaking of car loans and credit card interest rate, these two payments are similar with flexible payment plan which cause us to pay more. This is in light of fact that the interest rates are calculated based on the full loan amount instead of reducing balance which utilized in assets. Thus, its effective interest rate is differs than the advertisement. For instance, the interest rate for credit cards is calculated based on 1.5% per month, hence the effective rate per year is 18% (1.5% times 12 months). Apart from that , for a RM100000 car loan with a 2.5% interest rate and a 7-year loan tenure, the interest amount would be RM17500, making the total amount for the car RM117500. As a result the effective interest rate for this car loan is 4.7% instead of 2.5%, Here are the examples that we can clearly see and will make us to think twice when we going to take loan for a car, credit cards or even other depreciating items…

  Returning to the conclusion, we tend to be drawn in by the “attractiveness” of easy payment plans without weighing the hidden financial commitment on many occasions. In fact, it is totally wasting our hard-earned money on something that we overspend if we didn’t do any calculations on the hidden price in the so-called flexible payment. Although the flexible payment eases us to gain an item immediately, we may overlook the true value of the item and the potential financial burden it brings. Therefore, lastly, he reiterated on the last paragraph that we must think twice of a deal is too good to be true.

  Ok, that's all I want to talk about. I hope you enjoy this article and please follow me on my Google + account, twitter (@JiaZhe1) and facebook (username: Jia Zhe Wong)... If you have any comments or suggestions about this blogger, please comment below this blog post. Thank you, bye!