For all you busy shoppers out there, Black Friday is an exciting date in the calendar to do some important shopping. Whether it is shopping for household items, early Christmas presents or because Papa needs a new pair of everything, Black Friday is the last Friday of November where you can expect some serious discounts of 10%, 20% or 50% on some of your favourite household brands.
But whilst the average household might be spending more than $1,000 this Black Friday, there is a real question of whether you should borrow money, either through loans or credit cards, to help you maximise your spending and ultimately get the most value for money – as Pheabs investigates below:
Do The Savings Outweigh The Cost of the Loan?
If you are looking to get a loan, whether it is a short term loan or payday loan, you may need to consider whether the savings you make from Black Friday are worth paying the interest on the loan.
If you are only making relatively small purchases through Black Friday on clothes or electronics for $50 or $100, then paying interest on a loan may not make sense.
But when you start to look at larger purchases and spending $1,000, $2,000 or $5,000 plus, getting a loan could be a viable option. Especially if a limited Black Friday offer offers 20% or 30% on the item that you are looking to buy, then paying a small amount of interest is not the end of the world.
What Rate Are You Being Charged?
Of course, it is important to consider what rate you are being charged. Customers with good credit scores may find that they are only paying rates from 36% APR and if it just for a few weeks or months, this is might be economically viable.
However, if you find yourself paying the higher rates often associated with payday loans, such as 300% to 600% and you plan on borrowing for 12 months or longer, you may find that you are virtually paying double the interest on the amount you have borrowed – so in this case borrowing does not make much sense.
How Long is The Loan For?
If you know that you can pay off the loan quickly, this can be a viable option. The longer the loan is open, the more interest that accrues each month. So keeping a loan open for 24, 36 or 48 months is only going to cost more and more in interest over time.
You may need a quick injection of cash because you may be awaiting payday from work, expecting a bonus or you are about to sell your home. In which case, getting a small loan now may be an interesting option so that you can do your Black Friday spending, with the knowledge that you are going to be financially stronger in a few weeks time.
What Options Are There if I Want To Borrow Money on Black Friday?
Use credit cards and pay them back – Credit cards are essentially 0% loans, if you pay them back on time each month. Of course, some credit cards come with sign up fees, or they only charge you if you making minimum or late repayments. But largely paying back your credit card on time every month is 0%, or you can always look for 0% options and you can usually get cashback, loyalty points or airmiles too, which is perfect to make the most of a large Black Friday purchase.
Buy now pay later – The option of buying a good now and paying later (BNPL) has become huge in online shopping in recent years, from household items, clothes. electronics and furniture. There is no doubt that you will see a lot of this during Black Friday. The idea is that you can purchase the good today, subject to a quick check and then repay in monthly installments or in one amount in 6 or 12 months time. This is often interest-free, helping you to delay payment, but the rates are quite high if you cannot repay at the end, so you should always have an end goal in sight and avoid racking up lots of debt through buy now pay later.
Hunt for bargains – Some retailers offer better Black Friday deals than others and sometimes if it is worth shopping around for the perfect bargain. Especially if you have a particular product or item in mind, it is likely to be available from a number of places and doing your homework could be the difference between a 10% or 30% saving and clearing up a few hundred dollars. Be sure to look out for deals on Cyber Monday too or the days just after, since there can be a lot of leftover stock and cheap items up for grabs.
If You Are Going to Borrow Money on Black Friday – Top Tips From Pheabs
Compare rates – If you are looking borrow money for a Black Friday purchase, it is important that you compare rates from different providers, rather than taking the first offer you receive. Whilst payday loans are effective for quick financial needs, these can carry interest rates of 300% to 600% APR – and if you have fair or good credit, you could be able to access products around 36% to 100%, so it is worth looking around before jumping in.
Make sure the saving is worth it – Bargains and discounts on Black Friday are great, but ultimately, the interest you pay needs to be less than the overall saving. From small items of $50 or $100, this may not be worth it, but if you are buying something of $2,000 or $5,000 and getting a big Black Friday discount, there could certainly be a saving to be made.
Do not borrow for long periods – Loans are simply more expensive the longer that you have them open, since interest accrues every day, so if you borrow $500, it is going to cost less for 3 months, compared to 3 years. So if you are looking to make an immediate purchase for something that is on sale, try your best to pay this off quickly or within a few weeks or months and you could save very well on this. Your lender will always give you the option to repay your loan early by contacting them directly.
Always make sure that you can repay your loan – Payday loans and other short term loans can be become very expensive if you do not keep up with repayments. So do not be easily enticed by a Black Friday offer and be certain that you can avoid to repay your loan whether it is 3,6 or 12 months away. Failing to keep up with repayments can incur additional costs and late fees and this could outweigh any savings you made on your Black Friday purchase.
Please note that we do not encourage the use of payday loans or other high cost loans for personal shopping and non-essential spending. Payday loans should be used for emergency purposes such as car and home repairs – and are not designed for everyday spending or luxury items. In addition, such loans are not a long term solution to financial problems and should ideally be used for short term reasons. If you are having financial difficulty, please speak to a debt professional or debt charity.