Interest free instalments calculator

Only when there is no discount for paying cash. If the shop sells the same item for 1000 in cash or ten instalments of 120, you are not paying 1000 over ten months: you are borrowing 1000 and giving back 1200. The interest is hidden inside the discount you gave up.

The rate that makes those two payment streams equal is the real one, and it is usually high. In that example it comes out near 3.5 percent a month, which is over 50 percent a year.

It is the rate that makes the instalments, brought back to today, add up to the cash price. There is no closed formula for it, so the tool searches for it by halving an interval until it closes in.

The search is reliable because the present value only falls as the rate rises, which means there is exactly one answer and no way to jump past it.

When your money earns more than the hidden rate. Paying cash spends the money today; paying in instalments leaves it invested while the instalments come out of it.

That is why the return you earn is a field here and not an assumption of ours. Change it and the answer changes, which is exactly the point: the same offer is good for one person and bad for another.

Then it really is interest free, the hidden rate is zero, and paying in instalments wins as long as your money earns anything at all. The gain is small on a single purchase and adds up across many.

The tool says so on screen instead of printing a rate of zero and leaving you wondering whether something went wrong.