At the checkout
A $400 item offers "4 payments of $100, interest free" or paying in full. You have $430 in your account and rent is due in a fortnight.
What do you do?
Step 1: What Would You Do?
There is often more than one good answer. Pick one and see what happens.
Step 2: What That Was
The name for what you just worked out.
Borrowing is renting money. The rent is interest, and the honest price of a loan is the total you hand back, not the monthly figure in the advert.
Work out the total
Monthly payment multiplied by the number of months. Compare that with what you borrowed. The difference is what the loan cost you.
Longer looks cheaper and is not
Spreading a loan over more months lowers the monthly figure and raises the total. Adverts quote the monthly figure for that reason.
Instalments are borrowing
Buy-now-pay-later is a loan, whatever the checkout calls it. It has the same failure mode: missed payments, fees, and a mark on your record.
Step 3: Try It
These ones do have right answers.
Which Is Dearer?
1 of 2
Which of the two deals above costs more in total?
2 of 2
Why do adverts show the monthly payment rather than the total?
Step 4: Quick Check
Two questions, then you are done.
Question 1 of 1
What is the single most useful figure to ask for before agreeing to any credit?
Step 5: Your Life Mission
Something to do away from the screen. Nobody is checking.
Find the total
- Find any advert quoting a monthly payment — a phone, a car, anything.
- Multiply it by the number of months.
- Compare that with the cash price if one is shown.
Why: The gap between those two numbers is the thing the advert was designed not to show you.
Step 6: What You Learned
- Borrowing is renting money, and interest is the rent.
- Multiply the payment by the number of months to get the real price.
- A longer deal lowers the payment and raises the cost.
- Buy-now-pay-later is borrowing.
For the grown-up
The monthly-payment frame is the most effective sales device in consumer credit, and it works on adults with degrees. Teaching the multiplication is teaching the defense.
Watch for the belief that avoiding credit entirely is the lesson. It is not — credit is how most people buy a house or a car — and a student who fears it simply pays cash for things they could have financed sensibly, or borrows badly later with no framework.
Buy-now-pay-later is the version they will actually meet, often at a checkout, presented as a payment option rather than a loan. Naming it as credit is most of the lesson.