Does "Add to Cart" Feel Good Later?
The fear of missing out on a deal can cost you a lot more than you think.
With Amazon’s Prime Day just wrapping up, many of us may feel excited about the deals we've snagged. But before you congratulate yourself on a "smart" purchase, it's time to take a closer look. While discounts can seem appealing, financing those buys with a credit card, especially one with high-interest rates, can make those deals much more costly than you think.
The Trap of Discounts in the Digital Age
Online shopping makes it easy to fall into the trap of buying items we do not need, particularly when sales events promise 10%, 20%, or even 30% off. Credit cards, offering convenience, often make it easy to finance these purchases. However, unless you pay off your balance immediately, credit card interest rates, ranging from 18% to 29%, (with 25% being quite common), can significantly increase the actual cost of your purchase.
Watch the short video below for visual context of the examples
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How Much Do You Really Save With a Discount
Example 1: The $180 Dress at 30% off
Say that you found that a dress priced at $180 is on sale at 30% off its original price and reduced to $126. It seems like a decent saving of $54. However, if you charge that $126 to a credit card with a 25% annual interest rate and do not pay off the balance for 12 months, the cost becomes:
Purchase Price After Discount: $126
Monthly Interest Rate: 25% ÷ 12 = 2.083%
Total Cost After 12 Months: $126 × (1.02083)^12 = $161.18
After a year, that dress ends up costing you $161.18. You are saving barely $18.82 from its original price. So, was the 30% discount worth it? The reality is the “deal” is almost wiped out by interest charges, but yes, you are still saving a little money.
Example 2: The $200 Jacket at 20% Off
Now, imagine you found a $200 jacket on sale for $160 (20% discount). Using a credit card with a 25% annual interest rate and carrying the balance for a year, results in the following:
Purchase Price After Discount: $160
Total Cost After 12 Months: $160 × (1.02083)^12 = $203.95
The jacket costs $203.95 after interest, which is more than its original $200 price! So, instead of “saving” $40, you end up paying an extra $3.95 for the privilege of buying on credit.
Yes, I know that you can justify this by saying that you got to wear the dress/jacket in the interim, but the question remains whether you needed these items in the first place.
Did You Really Save on Your Prime Day Purchases?
Think about your recent Prime Day haul and try to answer the following questions:
How many of the items were less than 30% off their usual price?
Did you need them, or were you drawn in by the excitement of the sale?
Did you buy them using a credit card?
If those items were charged to a credit card that you will not be paying off at the end of the next billing cycle, any savings may quickly vanish as interest accrues. This can lead to buyer’s remorse, as the excitement of the sale fades and the reality of the financial impact sets in.
Why You Should Rethink “Deals”
The math reveals that unless you are getting a steep and genuine discount (at least 30% off from the usual price) and can pay off your credit card immediately, you are not really saving money.
With interest rates often around 25%, you might end up paying close to or more than the original price if you carry that balance for months. Small discounts of 10% or 20% are ineffective if left unpaid. Often, paying full price in cash or waiting until you can afford to pay off the balance is the smarter move.
Business Angle: Consider ROI vs. Loan Interest
Just as personal purchases on high-interest credit cards can diminish perceived savings, the same principle applies to business investments. When businesses take out loans or lines of credit, it’s crucial to evaluate whether the return on investment (ROI) will exceed the interest paid on that loan.
This is something to be particularly alert about when a heavy discount is offered by the seller of the product or service. Taking the perceived “discount” on its face value is a folly in a market where many sellers set their own prices and can increase or decrease prices based upon perceptions and driving a fear of missing out.
If the cost of borrowing is 25% annually and your projected ROI from the investment is only 10% or 20%, the business ends up at a loss. Whether you're investing in equipment, services, or even inventory, make sure to calculate the true cost of that investment over time.
The Hidden Cost of Impulse Buying (Spending)
Whether you're an individual or a business, impulse purchases or investments can be costly.
As consumers, sales like Prime Day often trigger unplanned buys—items you did not intend to get but felt compelled to purchase due to a “deal.” Similarly, businesses can fall into the trap of making hasty investments, whether in equipment, services, or even new ventures, lured by perceived cost savings.
In both cases, if you are not getting a significant long-term benefit or if you are financing those purchases without a solid plan to repay what seemed like a smart decision can turn into a financial regret.
Actionable Insights
Before you make your next purchase or investment decision, consider the broader financial impact. Whether it is personal shopping or business spending, ask yourself these questions:
Do I truly need this? Are you being swayed by a short-term deal or market opportunity that may not deliver lasting value?
Can I pay this off immediately, or do I have a clear plan for repayment? If not, the interest cost on borrowed funds, whether it's a credit card or business loan, could negate any perceived savings.
What’s the long-term cost? A 20% discount or an attractive business deal may seem appealing now, but when you factor in interest rates or opportunity costs, will it truly be worth it?
By slowing down and evaluating purchases or investments with these questions in mind, both individuals and businesses can make smarter, more financially sound decisions.
Conclusion
Deals and discounts, whether aimed at individuals or businesses, can be tempting, but they often hide the true cost of financing those purchases or investments on credit. A 30% discount may seem like a win, but when paired with a 25% APR, the benefits diminish quickly.
So, before you add that item to your cart or commit to that business investment, stop and consider the long-term financial impact. Being mindful of impulse decisions and understanding the true cost of credit can help both individuals and businesses avoid financial regret down the line.
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