Looking to buy big? Financing large home purchases—like a new refrigerator or television—has long been a big selling point of major brick-and-mortar stores, but now some of the biggest online retailers are offering amazing financing options. Amazon and PayPal both offer ways for you to finance the purchases that you make online. Just like larger purchases that you make at big department stores, you can pay off larger purchases on Amazon with installments, or kick the payment on your PayPal purchases down the road. How do these services work? More importantly, are they worth it?
How They Work: Amazon
Amazon requires that you make a purchase of a certain size to get a certain term of repayment. Six month financing is available for all orders over $149, 12 month financing for all purchases totaling over $599 and 24 month financing on “select items.”
There are also promotional items for each tier, but the top one is the place to look. It’s here that you’re going to find HDTVs, high-end, enterprise-grade software and professional-quality digital cameras. For the person who either wants or needs this kind of equipment, but doesn’t have the money at the moment, these types of programs can be great: You can get what you need now and avoid a credit card payment.
Once you’ve made your purchase, you have to make monthly minimum payments. You also have to pay off the entire amount by the end of the term to avoid interest charges. The interest rate is the current interest rate on your Amazon.com Store card, which you have to have to participate.
How They Work: PayPal Bill Me Later
Bill Me Later is effectively a credit line tied to your PayPal account. You can use it pretty much anywhere that PayPal is accepted, including the Internet’s flea market, eBay. To sign up you only need to enter your birthday and the last four digits of your Social Security Number. Approval is lightning fast and you can then set it as your default payment method.
You can pay off your balances right from your PayPal account. Your statement will also provide you the date by which you have to pay off the entire balance to avoid interest charges. Once the clock runs out you’re going to have to pay 19.99 percent interest on your purchase. Further, if you miss a monthly payment you will be assessed a $25 fee.
Is It Worth It?
Of course, the $64,000 question is—is it worth it?
There are two factors involved here: First, can you wait for whatever it is you need to buy. Second, can you pay it off in the allotted time?
The first question is incredibly subjective. You might not need that HDTV right now, but you might want it. This is what makes the second question so crucial. If you can afford to pay off that big television in the allotted time, go for it; but be honest with yourself about whether or not you can really afford a monthly payment that’s going to get you with a new TV now without any interest payments.
Finally, one last question to consider when it comes to zero-interest financing: Is being able to buy the things you want today making you spend money less wisely than if you had to save up? It’s easy to decide you want to purchase things you don’t really need when you only have to pay them off in bite-sized clumps over time rather than ponying up all the cash at once.
When it comes to making installment purchases online, the basic principle of “caveat emptor” applies. The allure of buying things today and paying for them tomorrow might be seductive; but if you miss a payment or don’t pay it off by the deadline, you’re going to be out more than you bargained for.
Nicholas Pell is a freelance personal finance writer based out of Hollywood, California. In addition to Credit Sesame, he also writes for Mint Life, Wise Bread and Business Insider, specializing in showing people how to live large on a modest budget and get out of debt. He has also reported extensively on the mortgage crisis, student debt bubble and health care in the United States. Pell lives a stone’s throw from the final resting place of Cecil B. DeMille with his wife and bulldog.