A deferred payment plan lets you take an item home now and pay for it later. All you usually have to pay up from is the taxes, the administration fee (if applicable) and the delivery charge (if applicable).

There is usually no interest charged on these purchases, unless the item is not paid in full by a specified date.

Example

A popular furniture store has a leather sofa on sale. It costs $1500 plus a $25 delivery charge if you pay today. You can also take advantage of their deferred payment plan. All you have to pay now are the taxes, a $35 administration fee and a $25 delivery charge. You have 2 years to pay for the sofa before interest is charged.

How much would you have to pay up front if you picked the pay later price? Calculate the pay-now price and the pay-later price. How much extra would you pay if you pay later?

Solution

If you pay now you will pay:

$1500 for the sofa
$1500 x 0.07 = $105.00 PST
$1500 x 0.07 = $105.00 GST
$25 delivery charge

$1500 + $105 + $105 + $25 = $1735.00

If you choose the pay-later plan your first payment would be:

$105 PST
$105 GST
$35 Administration Fee
$25 Delivery Fee

$105 + $105 + $35 + $25 = $270.00

The $1500 cost of the sofa would then have to be paid off in a year.

If you choose to pay later, you would pay an extra $35.00.