Should I pay for a computer up-front or on finance?

Question

This reads a bit like a home-work question, but this is actually my situation. The job I've taken is a BYOD (bring your own device), workplace and I prefer to use my own equipment.

• I've just started a new job and need to buy a new laptop within the next 4 weeks. I can purchase a laptop up front for $1,500.00 or buy one one with 12-months "interest-free" finance for $2,000.00 with up-front fees of $80.00
• I currently have a home-loan with an outstanding principal of $400,000.00. My interest rate is 4% and house prices increased by 5.7% in my area during the last year. The remaining term of the loan is 30 years. Currently, I make extra payments towards my home loan equal to $3,000.00 per month.

Question: is there any advantage to purchasing the more-expensive laptop using finance, as opposed to purchasing the cheaper laptop now? Assume that I will repay the price of the laptop within the 12-month period and the money that I would have otherwise spent on the laptop will be used to repay the home loan.

Answer 1

This is pretty simple, and doesn’t require too much math.

First, talk of liquidity is not necessary. You are currently paying $3000 extra on your mortgage every month. (Nice!) You certainly would have no trouble whatsoever paying cash in full if that turns out to be the smartest option.

Second, it is important to note that this “12-month interest free” option is a lie. They call it interest-free, but require an up-front fee of $80, which is 4% of the purchase price. You are paying all the “interest” up front; in fact, the equivalent interest rate would be higher than 4%: If you were to actually set up a $2,000 loan with 12 monthly payments at 4%, you’d pay less than $80 in total interest. So this “interest-free” loan is more expensive than your mortgage.

If you want the new laptop, you should pay the $2,000 in cash and skip the financing. If the secondhand laptop will work for you, you will save $500.

Answer 2

There is a third possibility. The cost of which is free. Use a company provided laptop.

Why: cost for the employee is zero. The company is responsible for purchase, upkeep, warranty. The company also takes on the risk that if you quit after 6 months they can reuse the computer for another employee, where if the employee purchases a computer then leaves after six months and the new employer doesn't allow BYOD, the BYOD computer will sit unused.

BYOD is a benefit to the employee when the condition of the company computer is below the requirements of the job, and the employee has available equipment that can do the job. BYOD becomes less beneficial when the employee has to pay for the equipment out of their pocket.

BYOD appears to save the company money, and labor, but is also a burden on the company infrastructure if the BYOD equipment become a vector for viruses. They need to make sure that BYOD devices are updated with patches.

Some companies offer to pay up to $x for a new computer, with the rest paid for by the employee. That is not a good option because the computer is still owned by the company.

If you insist on BYOD then make very sure that what you are purchasing meets the company guidelines. Issues can be: Mac vs. Windows vs. Linux. Software X vs Software Y.

Answer 3

Question: is there any advantage to purchasing the more-expensive laptop using interest-free finance, as opposed to purchasing the cheaper laptop now?

(from one of his comments) Either is fit for purpose, so essentially identical.

Yes: retained liquidity.

But you've got other, deeper problems if a guy with a $400K mortgage will suffer a serious liquidity crisis from a $1500 payment.

Answer 4

After reading the answers posted I decided to answer this question myself. I originally posted it because I thought it was an interesting little problem. I was hoping to see someone run with the numbers and blow me away by taking into account the time-value of money and the value earned by investing into an appreciating asset rather than a depreciating one. It would have been small, but would have loved to have seen the process.

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The standard mortgage calculation used in the United States (see: Wikipedia) provide a reasonable guide to the lifetime of the loan. The calculations are laborious, but the pmt function in Excel makes this easier. Given:

• Principal = $400,000.00
• Interest rate = 4%
• Periods = 360 (12 months per year for 30 years)
• Rate = 0.25% (4% / 12 months)

Then pmt(0.25%, 360, $400,000.00) = $1.686.42. In other words: the mandatory repayments for my loan are $1.686.42 per month for 30 years.

Using this number and building a spreadsheet to calculate the amount owing, I calculated that, with additional repayments, I will repay the loan in 8 years. At the end of the 96th month, I will owe $586.00. The spreadsheet indicates that the original pmt calculated repayments were correct, and a loan repayment calculator from my bank indicates that 8 years is accurate, accounting for additional repayments.

However, If I subtract $1,500.00 from the additional repayment I make in my first month then I will owe $2,487.00 at the end of the 96th month. Alternatively, if I subtract $250.00 from my first additional payment, and then $170 for the 11 months immediately following that (totaling $2,080.00), I will owe $3,238.00 in the 96th month.

Therefore, by my calculations:

• the total cost of the $1,500.00 laptop is $2,487.00 - $586.00 = $1,901.00
• the total cost of the $2,000.00 laptop is $3,238.00 - $586.00 = $2,652.00

In summary: if the laptops are both fit for purpose and I have to buy one of them, then I will pay an additional ~$750.00 by buying the more expensive laptop. The opportunity cost of not buying the second hand laptop is $250.00, since I'm already willing to pay the $500.00 difference. Although this savings is significant, it is inconsequential in the wider scheme of things. If I miss the opportunity to purchase the cheaper laptop then the more expensive one is acceptable (value judgement).

Answer 5

Do not take a laptop to work every day. It got several disadvantages:

• depreciates much faster;
• breaks faster;
• can be stolen;
• can be lost;
• you will have to replace the charger more frequently;
• can be forgotten both at home or work;
• can be a burden for your back, the weight really adds fast for carrying it every day (backpack+laptop+note book+mobile+charger);
• can be a burden to run errands before or after work (I know several people who had theirs stolen from the booth of the car - first rule is never letting a computer in the car unattended).

There is also the flip-side of the image you pass for your employer. Let them provide your tools of work.

With reliable and fast Internet connections, it makes much more sense, depending on your company policy, setting up internal servers via VPN, or remote cloud services as iCloud or dropbox, and synchronise your work with your laptop that is permanently at home.

Be aware that the expenses add up, and this can meant buying a new laptop every 2-3 years.

Source: my own experience. I ruined a laptop and the charger bringing it back and forth, and started having one corporate at work, and one of my own at home, synced by iCloud for documents (for the rest, I worked remotely).

As another piece of advise, never ever buy anything with interest besides a home. Those interest-free offers aren´t, there is always a catch, either paper works costs, discounts buying it on one go, or paying for mandatory insurance.

If you can wait, wait for the Black Friday deals, or similar promotions, usually when new generations come to the market, usually around November-February. I have got two MacBook Pros here that are way better machines than I was counting to have, because I waited for those deals.

Answer 6

Going by the information you have provided, the two choices as I see them are:

1) Buy the new-from-store $2,000 "interest free" laptop (and put the "saved" $1,500 into your home-loan)

2) Buy the second-hand laptop with $1,500 cash

Financially, option 2) is by far better. Comparing the two, you get:

1) Will cost you $2,020 over the year: $2,000 payment, $80 fee less $60 in "saved interest": $1,500 less @ 4% will "bring in" roughly $60. Depending on exactly when your interest is compounded (quarterly? monthly? etc) it might vary slightly, slightly being the operative word.

Pros:

• Brand-new machine, presumably has warranty on it
• More money available for emergencies - if those $1,500 cash represent a significant part of your liquid money, the situation changes

Cons:

• Costs more money
• Potentially tempting to spend the $1,500 anyway, since you didn't have to pay it out of pocket (hopefully not, but speaking generally this is a risk even if it doesn't apply to you).

2) Will cost you exactly $1,500 (as compared to option 1).

Pros:

• is cheaper: it'll save you $520 over option 1)
• less complicated than 1)

Cons:

• Used machine - you don't know what it's been through before it came to you. If it comes with manufacturer warranty, this is mitigated a fair bit
• All expenses out-of-pocket: Might be relevant, might not - depends on what your economy looks like otherwise

So, to answer your question "is there any advantage to purchasing the more-expensive laptop using interest-free finance", the answer is "yes, but not any purely financial ones".

Answer 7

From a technical point of view, if your job requires a higher end laptop, then the second option is definitely better financially and technically. However, if your requirement is not that high, not to the point of a 2k laptop, and you have enough money to pay for the 1.5k straight, then it's still good, given you saved some money without the need for such high end laptop.

Sidenote: average laptop can function without problems for 2 years, good for 5 years and beyond that usually will have some certain issues, this is of course my personal opinion.