Comments on: When To Finance Even If You Could Pay Cash

By: Susan

Susan — Sun, 23 Aug 2009 18:57:18 +0000

The strategy of acquiring a debt when one could pay cash for a purchase can have both positive and negative effects on one’s credit rating. I am assuming here the cash is kept available to pay off the loan at any time, and the individual is disciplined enough to stay atop the payments in the meantime.

Having different types of credit on your credit report can increase your score. Most people have credit cards (revolving credit), but not everyone has an auto, student, or home loan (installment credit) on their credit report. Even if you’ve had a successful installment loan in the past, it may have fallen off the report after seven years or so of the payoff date. Check your credit report. If you need to diversify your types of credit, taking out a car loan, for instance, when you might otherwise pay cash is a great way to do that.

The downside is applying for new credit can decrease your credit score, as can actually acquiring the debt into your credit portfolio. Additionally, if you don’t make larger-than-required payments on the loan, your debt-to-credit ratio will probably increase.

The bottom line is time. If you need your score to be high in the long term (say, if you would be shopping for a home mortgage 18 months from now), take out an installment loan to diversify your credit and raise your score. If you need your score to be high in the short term (you might be shopping for that home mortgage in the next four months), opening new credit accounts can lower your score, in which case you should pay cash for the item(s).

By: karen

karen — Fri, 14 Aug 2009 20:54:27 +0000

Thanks for this post. I currently or in the past have utilized each of these methods of buying with debt and feel slightly better about my economic situation knowing the methods are actually endorsed by someone other than me.

I think your cautions of making sure to stay on top monthly payments is well founded, but I also think its important to point out that a lot of the ways these companies “get you” with credit cards is telling you to make the “minimum” payment, which, at the end of your deferred interest period, will only pay off half the balance and all the interest will hit you anyway. This can easily be avoided by calculating and paying the minimum monthly payment required to pay the card off a month before the promotion expires (just to give you some cushion room). Either way, when it comes paying off things like loans and credit cards, “constant vigilance” is the best advice…..

By: Miriam

Miriam — Mon, 10 Aug 2009 11:58:23 +0000

While on the surface these all look like good opportunities, you have to remember that they are being offered to benefit the company. The credit card company is hoping that you’ll run up a balance and not really end up paying off the money at the end of the term. Most card users say they will set the money aside, but then something comes up. The same goes for the no interest furniture.

It takes someone with great discipline to be able to handle doing this type of thing. Most people think they can handle it, but many fall into the trap.

By: Deborah Anderson

Deborah Anderson — Fri, 07 Aug 2009 22:07:55 +0000

I think that there are also times when people even have enough money to purchase a house outright, but I think that a house is another situation where it is better to “go into debt”. I think this probably goes for when someone is into real estate investing and has the money from their passive income, but it still counts as a situation.

By: M.Wanzer

M.Wanzer — Fri, 07 Aug 2009 16:24:14 +0000

I would definitely utilize some of these situations if the opportunity presented itself. I tried this once, and was one day late on the minimum payment; the company quickly revoked the intro rate, and charged me a huge late penalty. If one is taking this route, MAKE SURE you keep on top of the minimum payments.

By: Wojciech

Wojciech — Fri, 07 Aug 2009 12:07:01 +0000

I agree with you, but I think as you point out, the key is to have the cash on hand and be able to pay the loan off in case of anything.

That and obviously not using the cash for other things…

Not having the cash, most people start these loans with the best of intentions, only to have something happen a few months in – job loss, income reduction, health emergency, whatever… Life isn’t fair but we can surely prepare.

Nice post.