How to work out the real cost of buying in installments

In a nutshell

Installments look cheap because each payment is small. What matters is the total that leaves your pocket. To find the real cost, compare the cash price with the sum of all installments. The difference, in reais and in percent, is the price you pay for splitting the bill.

Why the installment fools you

Brazilian stores often show the installment amount in big letters. The total appears in small print, if at all. A R$ 110 payment feels light in a month. But it repeats many times. So always multiply: installment amount times number of installments.

Example

Dona Lúcia wants a new fridge. The store offers two ways to pay:

• R$ 1,000 in cash (R$ is the Brazilian real);
• 10 installments of R$ 110.

First, she works out the installment total: 10 × R$ 110 = R$ 1,100.

Next, the difference in reais: R$ 1,100 − R$ 1,000 = R$ 100.

Finally, the difference in percent. She divides the difference by the cash price: R$ 100 ÷ R$ 1,000 = 0.10. That is 10%.

In other words, by paying in installments Dona Lúcia pays 10% more for the same fridge. That is R$ 100 that could go to another bill.

"Interest-free" that hides interest

Many stores in Brazil advertise "10 interest-free installments". Sometimes it is true. But check whether there is a discount for paying in cash.

Look at this case: a TV costs R$ 2,000 in 10 "interest-free" payments of R$ 200. Paying up front, it costs R$ 1,800. The math shows what is hidden: R$ 2,000 − R$ 1,800 = R$ 200. And R$ 200 ÷ R$ 1,800 is about 11.11%.

So if there is a cash discount, the installment plan costs more. The interest is built into the price. "Interest-free" is only truly free when the cash price equals the installment total.

Always ask: how much is it if I pay now?

Step by step

1. Ask for the cash price, including by Pix (Brazil's instant payment system) or in notes. There is often a discount that is not on the tag.
2. Multiply the installment amount by the number of installments to get the total.
3. Subtract: installment total minus cash price. That is the cost of splitting, in reais.
4. Divide that cost by the cash price to get the percentage. If you get 0.10, that is 10%.
5. Ask yourself whether the difference is worth it. Sometimes it is, when you do not have the money and need the item now.
6. If you like, use the installment simulator on the Meu Gasto Tools page. It does the math for you and saves nothing.

When installments can make sense

Splitting a payment is not always bad. If the cash price is the same as the installment total, spreading it out can help you organise your month. It can also make sense when the item is urgent, like a fridge that broke down. The point is to decide knowing the cost, and to check that the payment fits your budget for every month.

Common mistakes

• Looking only at the installment. A small payment can hide a large total. Fix: always work out the total before you decide.
• Trusting "interest-free" without asking the cash price. If there is a cash discount, the installment plan has a cost. Fix: compare both prices.
• Comparing the difference with the installment total. The right percentage uses the cash price as the base. Fix: divide the difference by the cash price.
• Forgetting installments you already pay. Several small purchases add up to a big credit card payment. Fix: add up every installment you already have before taking on a new one.