When making the purchase of a particular product, the consumer can choose to pay in cash or in installments. The installment sale is a great option for those who cannot pay the full amount, so the amount is divided into installments. In this type of purchase, finance companies usually charge interest, based on the value of the product, interest that is included in the installments. Thus, we have to be careful with the interest rates used by companies. Let's make a comparison between buying in cash or in installments, given the following situation:
A refrigerator is being sold in cash for R$1,200.00 or in 5 monthly installments of R$260.00 each, the first one being one month after purchase. A person has managed to make a cash reserve that allows him to buy the product in cash, but he is nevertheless in doubt. If you invest the money in an investment at the bank, it will receive monthly interest of 1.5% per month. So what is the best option for this person? Buy in cash or on installments?
Observe the simulation of a possible installment purchase, highlighting in the spreadsheet, each month, the opening balance, the interest received, the withdrawal for payment of the installment and the final balance.
Remembering that 1.5% = 1.5/100 = 0.015
Choosing to pay in installments, this person will have to pay R$ 46.87 more to pay off the last installment. Thus, it would be more advantageous to make the purchase in cash and this difference demonstrates that the finance company charges interest above 1.5% per month.
If the principal amount was divided into 5 times, the installments would have amounts equal to R$ 240.00. Note how the situation would look:
In this case, the person would earn R$ 56.18 opting for payment in installments. Therefore, when making a purchase, whether in cash or in installments, try to analyze very calmly the method chosen for payment, in order to avoid losses.
by Mark Noah
Graduated in Mathematics
Brazil School Team
Financial math - Math - Brazil School
Source: Brazil School - https://brasilescola.uol.com.br/matematica/compras-vista-ou-parceladas.htm