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Introducing: Let's Run the Numbers

OnTrack WNC's new monthly article which combines financial wit and good-old fashioned number-crunching wisdom

Let's Run the Numbers is a new monthly article written by OnTrack WNC's certified financial and housing counselor, Dave Werle. Dave has worked with OnTrack WNC for over 5 years, imparting financial wisdom to the masses. Drawing on his specialized training and long experience in helping people with their finances, Dave matches wit with timely information and nerdy number calculations that inspire smart financial decisions in all of us.

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Let's Run the Numbers: So You Want a New TV? Layaway is back in style.

Layaway.  Yes, that’s right.  The often ridiculed concept of layaway is giving me the warm fuzzies. A leading retailer has recently been promoting this new old fashioned way of purchasing your bigger ticket items. Their terms are: no finance charges, a $5 service fee, $15 cancellation fee, a down payment of 10% or $15 and then payments every two weeks until you’ve paid in full.  Then you take your purchase home. 

Most people turn up their nose at the idea of waiting to get something they want.  Is it a sign of sophistication or affluence to charge a TV on a credit card and pay 18% interest over 8 years as you pay off that purchase? 

Let’s run the numbers for fun. 

Let’s say you want a 55” flat screen 3D TV.  (The plain old 37” flat screen just isn’t doing it for you anymore.)  I found one online for $1800. 

Layaway purchase will cost you $1805 = $1800 + $5.00 service fee. 

What if you purchase the same TV and put it on your credit card at 18% interest? Of course, you pretend not to be aware of that high interest rate now prominently displayed on your credit card statement.  You focus only on your small monthly payment.  $1800 at 18% annual interest might get you a minimum monthly payment of $35 per month.  It will be paid off in 99 months and you will have paid $3,470, almost double the layaway cost. 

Sound good?  Well “duh” you say, “my credit is good and my rate is only 9.9%.”  It will still take 67 months to pay off and you will have only paid $2,352.  Feel better?   That’s a whole lot of cheddar to pay for instant gratification.

If you think that’s bad, then check out the cost of rent-to-own.  The same TV at a home furnishings lease-to-purchase store goes for only $59.99 per week for 130 weeks.  Of course their “cash price” is a bit higher, $3,299.  (They use that price to figure your weekly punishment.) After those 130 weeks are done, you will have paid $7,799.  What?  That can’t be right! It is.  Do the math.  So, what interest rate are they charging?  Conveniently, it’s not on the advertisement.  That’s because not many people would agree to pay 82% annual interest! 

What’s the equivalent rate for the layaway purchase?  If you pay for it in 6 months, the $5 added fee produces a miniscule 0.6% annual percentage rate. 

So, who’s the big dummy now? (Sorry, I’ve been watching “Sanford & Son” on free Antenna TV lately.)  Layaway is just old school.  Embrace it.  Or save up your money until you can afford to pay cash for the TV. 

By: Dave Werle

United Way NFCC Council on Accreditation