Piano Now, Pay Later?

This fall, my wife and I dropped our only child off at college. I knew it was going to be a tough adjustment for me. So I did what any gadget- and music-obsessed dad would do: I bought a piano and put it in their room.

Now, as much as I would have liked to nab a Bösendorfer Imperial concert grand, it might have been difficult to get it through the door of our small apartment, and the $300,000 price tag was problematic. Furthermore, my piano skills can be described as “Chopsticks.”

So instead I decided on a popular model of Yamaha digital piano. With a keyboard stand, bench, and sustain pedal, the price came to $975 including sales tax. Let’s call it $1000 for simplicity.

Now, I don’t know about you, but to me, $1000 is a lot of money. I spent plenty of time researching and saving up for the piano. When it came time to buy, the retailer offered me a variety of zero-interest Buy Now Pay Later (BNPL) options. Three installments of $333. Six installments of $167. Even 36 installments of $27.78!

And that got me thinking. Even though I’d saved up the full price, couldn’t I beat the financing companies at their own game by signing up for one of these offers and letting the money sit in my high-interest savings account while making the payments? Surely the interest I’d ern on $1000 would be enough to make the minor extra effort worth it, right?

Now, I’m not just Piano Dad. I’m also Spreadsheet Dad, so I cooked up a spreadsheet to answer that question. I just today received an email from my bank telling me my interest rate went up to 2.5%, so let’s assume I’d earn that rate on my savings throughout the payoff period.

When I calculated how much I’d save by paying off in six installments and keeping the interest earned, I was shocked, and not in a good way.

The answer is $5.22.

Five measly bucks for the hassle of setting this payment plan up in my budget and the twinge of worry that I might somehow miss a payment and pay a late fee that would definitely be much more than $5.

Then I looked at the fine print. There’s a $15 “processing fee” for using the six-month installment plan. Even though I could earn interest on my money for six months, I’d be out $10!

The 36-month plan is a little more interesting. That one has a $20 fee, and I could earn $37.33 in interest over that period, which puts me $17 ahead. Except that this plan requires signing up for the store credit card, which would mean giving up the 2% cash back that I earn with my regular card. That would cost me $20, so now I’m $3 behind at the end of 36 months.

Now, some BNPL plans are truly free of interest and fees (as long as you pay on time), but they’re typically short-term. Read the fine print—“0%” financing on a credit card such as My Chase Plan or Amex PlanIt almost always comes with a fixed fee that is going to be larger than any interest you could earn if you’ve already saved up the money for your purchase.

For a short-term payment plan, the interest you earn is going to be peanuts. Choosing a Buy Now Pay Later plan when you can afford to pay cash isn’t like taking advantage of credit card rewards or signup bonuses. You’re going to pay unexpected fees, complicate your budget, and risk paying late fees or interest if you make one mistake—all to maybe save a few dollars.

There’s one more risk I didn’t mention, and I hesitate to bring it up, because I’d like to pretend it doesn’t apply to me. I’m very excited about the piano right now, because it’s brand new. Am I going to feel the same way, say, 18 months from now? I don’t know. But I know that if I get bored with the piano and it joins my Closet of Rarely-Played Instruments, I would be very frustrated if I was still paying monthly for it at that time.

So I decided to pay cash for the piano, and I’m really enjoying it—thanks for asking! My neighbors may have a different opinion.

Set up a saving plan in YNAB to make those big purchases a reality without having to stress about payment plans. Not sure where to start? Take this short quiz and get a custom template to get you saving in no time!