Borrowing: Pay Monthly or Pay Lump Sum?

By John Swindells 26 Mar 2011 | Comment
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The scenario is this: You need to buy a computer for £1000, but don't have the money. Somebody agrees to lend you the money, and you have two options:
  • Pay back £100 a month for the next year. You end up paying £1200.
  • Pay back £1200 after a year. You end up paying £1200.

Is one option better or worse than the other? They both have the same outcome, right?

If you are good at saving, then you should theoretically be better off earning interest on your £100/month payment, ie, taking the second payback plan. However, if this describes you, then you won't have needed to borrow the money in the first place! People generally are quite bad at budgeting and scheduling for large payments, so it is overwhelmingly better for 'Joe Public' to take the pay-per-month repayment plan.

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3 Comments

by no credit check loan on 18 April 2012
The main benefit of paying down the loan with a lump sum is that you will pay your loan off early by adding additional principal. The reason is by making a lump sum payment towards the principle you interrupt the amortization schedule. Paying down the principle to accomplish this goal faster is an understandable investment.
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by Pay Day Loan on 09 January 2012
Yeah if you not are in good saving then lending money is good but it is better to understand full terms and conditions of it.
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by Payday loan on 10 May 2011
You must definitely pay off full balance on your credit cards. You must have at least on time 12 monthly payments on your loans to get good credit score.

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