Comparative Costs

All purchases made under any form of credit arrangement are virtually a borrowing of money. Of the methods so far outlined different purchasers may find that some one method has special features that happen to suit their purposes. Nevertheless, one should be aware that there can be quite a wide disparity in costs.

Type of credit

Interest-free credit Credit cards

Charge account

Credit sale

Shop's budget account Hire purchase

Range of true interest rates per annum (2000)

Nil (or discount forfeited)

Nil for about one month;

around 30.6% for extended credit

Approximately as for credit cards

26.8% to over 32%

About 25% to 30%

Varies up to 38%

These are only sample rates obtained from different suppliers. Hire purchase is seldom used nowadays except for car purchases, where it is usually the only method by which a finance company will provide finance. Since the risk of loss is higher in this field than in other fields, the true rates tend to be higher. In some cases it could cost a true rate of up to 45% to purchase an old second-hand car on HP.

Budget Account

Many shops, particularly outfitters and drapers, offer a budget facility. This is designed for financing not a single purchase of a high-priced article, but for repeated small purchases. The customer decides how much he can afford to pay the shop as a monthly instalment (a minimum payment is usually set of £2 to £5), and the shop allows him to purchase goods to the value of, say, 24 times the instalment.

This is a useful device from the trader's point of view since it encourages the customer to deal regularly with him; and from the customer's angle it affords the useful facility of 'revolving... see: Budget Account

Personal And Business Finance 2018

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