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Comparing payment methods

Learn how to compare different payment methods: cash, card, rent-to-own, installment, store financing, and layaway.
When paying for small purchases, like coffee or a haircut, paying cash is almost always the best choice. You do not have to worry about its impact on your budget, or paying any unnecessary fees like interest, processing fees, or minimum charge fees. But, when it comes to bigger purchases, cash may not always be readily available or best. Let's look at some scenarios and compare different payment methods.

Scenario 1: Buying a TV

Let's assume you are thinking about buying a TV. The total cost, after taxes, is dollar sign, 550. You have dollar sign, 200 saved already. Below are the options available to you:
CashNonedollar sign, 550will have to wait until fully saved up
Credit card20, point, 99, percent APR, 30 days grace perioddollar sign, 550, plus interesthave to pay off fully in 30 days to avoid interest
In-store financing6 months interest-freedollar sign, 5506 payments of dollar sign, 91, point, 67
Layawaydollar sign, 5 set up fee, equal monthly paymentsdollar sign, 555will have to wait to take home
Choosing the best option will depend on a mix of your current financial situation, your discipline, and your own emotions.
If your only concern is paying the lowest cost, then cash and in-store financing are the best choices. Credit card may be a choice here, as well, if you can pay off your balance in 30 days. However, if you want to be able to take the TV home with you immediately, and will not have the entire amount saved up in the next month, then in-store financing becomes the best choice.

Scenario 2: Buying furniture

In this scenario, let's assume you are moving from one-bedroom to a two-bedroom apartment and you need to buy furniture for the second bedroom. The total cost to furnish the bedroom is dollar sign, 725. You have just put down a deposit for the apartment, so you do not have enough cash to buy the furniture outright. On top of that, your credit score is low, since you just started building your credit history. Let's look at all the payment options and try to decide on the best one.
start cancel, start text, C, a, s, h, end text, end cancelstart cancel, start text, N, o, n, e, end text, end cancelstart cancel, dollar sign, 725, end cancelno cash saved up
Credit card29, point, 99, percent APR, 31 days grace perioddollar sign, 725, plus interesthave to pay off fully in 31 days to avoid interest
start cancel, start text, I, n, negative, s, t, o, r, e, space, f, i, n, a, n, c, i, n, g, end text, end cancelstart cancel, 9, start text, space, m, o, n, t, h, s, space, i, n, t, e, r, e, s, t, negative, f, r, e, e, end text, end cancelstart cancel, dollar sign, 725, end cancelnot approved
Layawaydollar sign, 5 set up fee, equal monthly paymentsdollar sign, 730will have to wait to take home
Rent-to-owndollar sign, 70 per month for 12 monthsdollar sign, 840no credit check, 16, percent interest
In this scenario, we see that two of the options are not available: cash and in-store financing. Cash is unavailable because there is no cash saved up to fully pay off the furniture. In-store financing is also unavailable since the application for the store credit card was not approved, due to a low credit score. This leaves us with three options: credit card, layaway, and rent-to-own.
If your main goal is to pay the lowest cost, then the best choice would be your credit card, as long as you pay it off before the grace period ends. If you cannot pay off the balance in 31 days, then the second lowest cost would be layaway, as long as you do not need the furniture immediately. This would be the best choice if the second room is a guest room that would not be used immediately.
If you need the furniture immediately and will probably take a year to pay off, then rent-to-own becomes the best choice. Even though the total cost initially appears to be the highest, it is actually lower than the credit card's total cost.
Finding the best payment option depends on many factors, from your finances, budget, timeline, and even emotions. It is always a good idea to write all your options down and eliminate the ones that do not work for your situation.

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