Borrow or pay in Instalments?

If you have bills to pay but do not have the cash on hand to pay them, should you avail of the option to pay in instalments or borrow to make a single payment? The answer is it depends on the costs of each option. If there is no additional cost to paying by instalments then that is the way to go. However, more often than not you end up paying more on an instalment plan. If you delay payment are there penalties? Can you take out a short-term loan and repay in instalments at a lower cost than that charged by whoever issued the original bill? For example, if you have a motor tax bill due and finances are tight it might be worth calling on your local credit union rather than pay the motor tax in instalments. Below is a list of tax rates for a private motor car.

Motor Tax rates
According to this table if you have a car with an engine size between 1401 and 1500 cc the annual tax to be paid is 413 if paid annually. If you pay half-yearly you make two payments of €229, and if you pay quarterly you make four payments of €116. The half-yearly payments total €458 and the quarterly payments total €464 for the year, increases of 10.9% and 12.3% respectively on the single annual payment. Can you get a credit union loan cheaper than this with 12 monthly payments. You can always pay it back early without penalty. Similar considerations might apply to car or house insurance or health insurance.

Where taking on debt is necessary at least borrow at the lowest cost. If you have for example fallen behind in credit card repayments borrow elsewhere at a lower rate (for example from your local credit union), and use the cheaper borrowing to clear the expensive credit card debt.

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