Why installment plans should be treated with caution, even if there are no overpayments on them.

This creates incorrect behavior patterns.

Credit is an unpleasant word. Many of us seem to have it written down in our subcortex that this is, if not a path to nowhere, then a way to make ourselves poorer with our own hands. After all, you will have to pay interest to the bank, so the goods will cost more than they could. (This attitude is not entirely fair, because it is just a financial instrument, and a lot depends on how you use it.)

Whether it’s an installment plan or recently introduced services for paying for goods in installments. After all, there is no interest on them. More precisely, the store gives them away, and the client gets the purchase at the same price as everyone else. So you can buy what you can’t afford right now - very convenient! Or not?

There is a catch here, and we will talk about it now.

What are the dangers of “buy now, pay later” and installment plans?

Finance looks like something whose movements are easy to calculate and predict. After all, we are dealing with a quantifiable resource expressed in specific numbers. Therefore, it seems easy to handle money rationally.

However, behavioral economics disagrees. People generally do not behave rationally, even when it comes to finances. There are so many variables involved that it’s impossible to keep track of everything. And of course, a person’s attitudes and habits and all other psychological things are of great importance. But in the end, the use of various types of installment plans leads to the following consequences.

Life is too expensive

Some studies show that buy now, pay later services lead to increased demand for luxury goods and, consequently, increased spending on them. On the one hand, this sounds good, because people can live better than without installment plans. On the other hand, many still cannot afford it.

It's better to live well, who can argue. But debt - and this is exactly what it is, albeit without interest - takes away a person’s freedom of choice. After all, his next salary no longer belongs to him; he must give away some part of it. It is critical for him to lose income, which means he will be less inclined to change jobs if he doesn’t like the old one, or to do some similar things. That is, in the long term, quality of life may deteriorate.

Increase in impulse purchases

There is evidence that such financial instruments can push buyers towards impulsive purchases. If you can buy something in installments, the customer makes decisions more hastily and less thoughtfully and is more likely to regret them later.

Loss of understanding of real possibilities

Buying something is a pleasure for us. But having to pay is perceived as a pain. But installment plans and “buy now, pay later” services remove this balancing component of the pain. And this also applies to loans, by the way.

And as a result, spending ceases to seem real, the line between one’s own money and the bank’s finances is blurred, and it becomes unclear what a person can afford and what not.

Should installment plans be considered evil?

Installment plans and “buy now, pay later” services can negatively affect a person’s financial and, as a result, psychological state, because money problems have never made anyone happier in the long term.

But does this mean that the problem is in these tools as such? Not at all. Many studies also suggest that increasing the level of financial literacy and self-organization reduces the risk of negative consequences.

What to do to prevent installment plans from causing harm

Although there are no overpayments on them, they should be treated the same as loans. That is:

• Use installment plans as a last resort tool. For example, your refrigerator is broken. It won’t be possible to wait and save up here, because even in a long winter, storing food on the windowsill is not very convenient. Equipment is needed now, and if there is no money, installment plans are clearly a friend, not an enemy.
• Buy in installments only what you really need. A down jacket for the winter because the old one is torn - yes. Twentieth jeans - no. Because the first is a necessary expenditure. You can, of course, buy a jacket cheaper, but of poorer quality and end up freezing all winter. But overall it’s worth paying more for comfort. Secondly, I can’t afford to live on it. If the excess is not available without borrowing, then this is not your standard of living. It sounds sad, but it protects you from the fact that the financial situation will become even worse.
• Read the terms carefully so that the installment plan without overpayments does not turn into a snowball of growing debts.
• Do not abuse installment plans. If there are several of them, this is a reason to think about how financially disciplined you are and how you ended up in this situation.