Want another discount? Stop making monthly payments.

In “8 super-smart ways to save” (published in USA Weekend March 21, 2010) Jean Chatzky and Sharon Epperson write that paying insurance premiums annually instead of monthly or semi-annually could save you money. Chatzky and Epperson state that paying less than the full amount, but more frequently, results in “fractional premiums”. That means the total amount you pay over time will be more than what a one time payment would be.  

Why does paying over time cost more?

There are costs involved to both a seller and buyer when payments are going to be made over time. The seller has the administrative costs of billing and collecting every month instead of just one time. Buyers pay an additional amount over time to compensate the seller for providing goods or services now. Additionally, buyers have the hassle of managing another bill each month.

One trap many consumers fall into is an offer of free financing, another form of paying over time and receiving your purchase now. No financing is free. Someone has to pay for it. The seller that offers free financing has to pay a commission to the lender, who is providing the loan, in order to offer financing to a customer. The seller has decided she is willing to pay that percentage in order to attract you in to make the sale. The same is true for retailers who accept credit cards for payment. However, in each case the seller will find a way to pass that cost along to the buyer. Rather than having the seller pay a commission to a lender, why not ask for that amount as a discount for paying cash?

Get a cash discount

When was the last time you asked a salesman for a discount when paying up front for something? Perhaps the seller would be willing to give you a discount for paying cash rather than paying a fee to a lender or waiting months for the full payment. You may not always get additional money off but you may be in a position to get a better deal. For example, you may ask for an extra month (gym or other memberships), extra year (warranty), extra entertainment (buy 8 movies get 2 free), or extra product (18 issues of a magazine for the price of 12).   

Understandably, it is difficult to pay for everything up front, especially for big ticket items like a car or home. However, when planning a purchase, consider saving enough money in order to pay in advance. When you are able to do that you can demand better deals. Getting into the routine of collecting extra service, product, or cash from sellers for paying in full will keep putting you further ahead financially. The money you save with discounts and extras can then be used on other things that promote your household’s financial health.

www.usaweekend.com/article/20100319/MONEY/100318004

www.consumer-action.org/index.php/alerts/articles/insurance_premium_installment_fees

 
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