Young Danes are increasingly buying consumer goods and goods on installments rather than taking out a consumer loan. But just as consumer loans can contribute to indebtedness, so can the installment schemes.
Installment schemes everywhere
There is a growing market for installment schemes and you can pay off most consumer goods – everything from groceries to your smartphone. Installment schemes have long been a payment solution for major consumer goods such as electronics and furniture, but developments in the market show that everything from food and clothing is also popular to buy on installments. After a number of years of warnings about expensive consumer loans, the installment schemes have emerged among the younger population. Payment schemes are especially widespread among those who buy through the Internet. When you put an item in your virtual shopping cart and go for payment, you will in many cases have the option to pay off your purchase instead of paying the full amount right away. For example, if you buy a pair of shoes for $ 1,000, you may have the option of paying the amount over 12 months. This means that you pay $ 1000/12 months = $ 83.33 a month instead of paying $ 1,000 at one time. It may sound like an attractive solution if the monthly available amount is tight, but it can also be dangerous.
Interest and fees = a higher overall price
Installment schemes are often added to interest and fees, causing the total cost to rise. The product you thought costed 1,000 dollars can thus easily become significantly more expensive when various costs are included. Today, however, it is possible to buy on installment without interest – for example from telecom companies where you can pay off your smartphone interest-free when you buy a certain subscription. Still, this is not automatically a sensible way to fund your purchase. It is no less financially harmful to buy on installment versus to take out a consumer loan, which many believe. If you buy your smartphone on installments with interest and fees, you may end up paying the equivalent of two smartphones. If the installment is free of interest and fees, you will most often be tied to the telecommunications company for a given period and you cannot get out of the deal.
There is no easy and gentle way to fast money for consumption. For example, when you buy a smartphone on installment, it is typically over a 12-48 month period, but it is rare that the smartphone lasts the entire period or that you want to keep it for as long. The average age of mobile phones is 19 months. If you no longer have your item, there is a high risk that you will not be motivated to continue paying. This is where it gets really dangerous and you could risk being registered in RKI as a poor payer. When you buy goods on installment, you can make your finances clear and difficult to see because you pay off on consumer goods every month. Moreover, your finances become more vulnerable. If you lose a source of income and receive a smaller amount of money, you are still tied to the installment and you cannot stop the payments.