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What should be considered when deciding about purchasing new furniture using cash...

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soman2006 | Student, Undergraduate | (Level 2) Salutatorian

Posted May 29, 2012 at 9:31 PM via web

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What should be considered when deciding about purchasing new furniture using cash versus credit?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted May 29, 2012 at 9:42 PM (Answer #1)

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Assuming that you have enough money to comfortably buy the furniture with cash, the only thing you need to consider is the opportunity cost of paying cash.  You have to determine whether it will be greater than the cost of buying on credit.

If you buy on credit, you will have to pay interest.  This means you will pay more than you would if you paid cash.  But if you buy on credit, you also get to keep your money in the near term.  You can then do something else with that money.  So, what you have to ask yourself is "if I buy on credit, what would I do with the money that I am not having to pay right now?"  If you would do something (like investing the money) that would gain you more money than you pay out in interest, then buying on credit is a good deal.  If not, you are better off paying cash.

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