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Installment vs Cash Price Calculator

Should you pay cash with a discount or buy on installments? Find the hidden interest rate of a store installment plan or “interest-free” months against the cash price, its present value and which option is cheaper.

Cash price (after any cash discount)

Down payment on the installment plan

Installment amount

Number of installments

Installment frequency

What your money earns elsewhere (per year)

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How it works

Financed = cash price − down payment · periodic rate i solves financed = installment × [1 − (1 + i)⁻ᴺ] ÷ i · APR = i × payments a year · present value of the plan = down + installment × [1 − (1 + j)⁻ᴺ] ÷ j, with j = your savings rate per period

An installment plan hides its interest whenever the store also offers a lower price for cash. If an item costs 10,000 in 20 “interest-free” monthly payments but 9,000 cash, the 1,000 difference is interest — the calculator turns it into an annual rate you can compare with a loan or credit card. The second test discounts the installments at what your own money earns: when the plan really is interest-free and there is no cash discount, paying in installments and leaving the cash in savings wins.

Worked example

A TV costs 10,000 in 20 monthly “interest-free” payments of 500, or 9,000 cash. Financing 9,000 with 20 payments of 500 implies a monthly rate of about 1.03%, an APR of 12.30% (13.02% effective). Discounted at the 6% your savings earn, the installments are worth 9,506.65 today — 506.65 more than the cash price — so paying cash is the better option.

Sources: Wikipedia — Annual percentage rate · Wikipedia — Present value

Frequently asked questions

Are “months without interest” really free?

Only if the cash price is the same as the installment total. If paying cash gets you a discount, the discount you give up is the interest — this calculator shows its annual rate.

What cash discount makes paying cash worthwhile?

Whenever the implied rate is higher than what your savings earn. Even a 5% discount on a 12-month plan is worth roughly 9–10% a year.

Does the calculator include card interest if I miss a payment?

No. Missing an installment usually voids the promotion and triggers the card’s full interest rate — that cost would be far larger.

What savings rate should I use?

The after-tax rate you actually earn on a deposit, money-market fund or savings account you would leave the cash in.

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Estimates for education and planning, not financial advice. Lenders’ contracts, fees, day-count and rounding rules differ — check the official cost disclosure (APR / TAE / CAT) in your loan or card agreement before deciding.