Buying now, paying later
Credit lets you use goods or money now and pay later, which creates a debt. Common examples are hire purchase, personal loans and credit cards. Credit is convenient, but it usually costs extra in interest, so managing debt well matters.
Key idea
Hire purchase total = deposit + (monthly instalment × number of months). Interest charged = total paid − cash price. Loan simple interest: I = P × r × t. A credit-card charge is the interest rate applied to the unpaid balance.
Hire purchase
In hire purchase you pay a deposit first, then fixed monthly instalments. The total you pay is usually more than the cash price, and the extra is the interest charged for spreading out payment.
Worked example
A phone costs RM1100 cash. On hire purchase you pay a RM200 deposit and 12 monthly instalments of RM90. Total paid = 200 + (12 × 90) = 200 + 1080 = RM1280. Interest charged = 1280 − 1100 = RM180. So buying on credit costs RM180 extra.
Managing credit wisely
Credit cards charge interest on any unpaid balance. On a RM800 balance at 1.5% per month, the interest is 800 × 0.015 = RM12. Paying the balance in full avoids this. Comparing the cash price with the credit total shows the true cost of borrowing.
Remember
- Hire purchase total = deposit + all instalments.
- Interest charged = amount paid − cash price.
- Unpaid card balances grow through interest, so pay on time.