Other Sources of Credit

To accept the first form of credit that is offered by a supplier of goods is unwise without first checking that the cost of that credit is reasonable as compared with other sources of credit. In many cases it may be more economical to obtain a loan in money and to pay cash for your purchases. Advantage can then sometimes be taken of any cash discounts available, and in the case of expenditure on such things as road fund licences and rail season tickets you can often save more money over a year by taking an annual contract instead of a daily or weekly one, than it costs in borrowing the money for the purpose.

Example

Annual outlay

Daily rail fare from A to B is £l.74 (assume

5 days per week for 49 weeks less 1 bank 407.16

holiday per month)

Weekly ticket costs £7.40 for 49 weeks 362.60

Monthly contract costs £28.40 x 12 (but £21 319.80

is saved by omitting the month of

holiday and taking a weekly ticket for the odd week)

Quarterly contract costs £81.80 x 4 327.20

Annual contract costs 294.00

Personal bank loan for £294 at 11% flat for 1 year

326.28

Purchasing an annual contract with a personal loan is therefore cheaper than a daily ticket, a weekly ticket, or a quarterly contract, though not cheaper than a monthly ticket, modified for the annual three-week holiday.


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 (2016)

Nil (or discount forfeited)

Nil for about... see: Comparative Costs


Refunds, Personal And Business Finance 2017

  • You can send us an email if you want to know more about waht we do and we will get back to you as soon as we are able.

  • Want to be a published author
    We publish articles on this site if they fulfil our requirments. more>>