25

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.

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    Are these laptops otherwise identical, or is the $2,000 one significantly more powerful than the $1,500 one? – MPF Jan 28 '18 at 9:13
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    Then - correct me if I'm wrong - aren't you effectively paying $500 for the "interest free" one? What about warranty and such - I ask because, all other things being equal, the interest-free one is by far the worse deal, financially speaking – MPF Jan 28 '18 at 9:43
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    How old is the second hand one? What kind of work do you do? i.e., you will your laptop mostly for things like email, word, or for something like photoshop /software development? – DarcyThomas Jan 28 '18 at 9:46
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    Is the secondhand laptop warrantied? Until when? Is the warranty transferable? Buying new may give you a warranty (manufacturer, CC or aftermarket) which the secondhand one won't have. How much lifespan do reviews lead you to expect from the secondhand one? (e.g. Apple 6-10yrs, HP <2.5 years). Is the secondhand laptop repairable or a sealed-unit? Are repairs back-to-base (how many weeks delay?) or at the retailer? All these buying considerations matter and are far more important than a differential between 4% and 5% APR. As to being fooled into telling us 4% APR upfront = "interest-free" – smci Jan 28 '18 at 16:47
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    You're making this question more complicated than it needs to be. The mortgage is irrelevant. If you buy the cheaper laptop, whether you spend the money saved to pay down your mortgage or to buy cocaine does not change the amount of money saved. The only relevant questions are: (a) Can you afford to pay the cost of the cheaper laptop up front, or do you need to stretch the payments out over a year to be able to afford either one? (b) Is the more expensive laptop worth the extra cost? This is hard to answer without knowing the relative capabilities and your needs. – Jay Jan 30 '18 at 3:26
121

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.

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    This is a fantastic answer - and of course, plugging your calculations into my spreadsheet shows that you are in fact correct. Appreciate the insight, will keep that in mind in future. – user67312 Jan 28 '18 at 13:10
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    This is a beatiful answer, reducing a seemingly complicated question to a satisfyingly simple one. – TTT Jan 28 '18 at 14:20
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    only $80? It will probably need mandatory insurance too, and then the fee of the paperwork+taxes. I would not get surprised those $80 turn up to be really +$200 by the time you pay off everything. Tip: Besides a house, never buy anything else using credit. – Rui F Ribeiro Jan 28 '18 at 21:11
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    @jamesqf See this answer. You don't make money from buying things on credit. In this case, even if the $80 fee wasn't there, I would not advise signing up for monthly payments on something that is easily affordable, all for the sake of trying to get a tiny gain. If the laptop is truly sold with a 0% loan, it simply means the laptop is overpriced. And the loan is full of small print that causes the interest rate to jump if a mistake is made. – Ben Miller Jan 29 '18 at 3:59
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    @jamesqf The money saved on 0% deals has to be worth your time studying all the fine print of the financing to figure out how they're making money. Then you have to be 100% sure you won't fall foul of whatever scheme they're using. I don't have that kind of time or want the extra stress for most things, personally. – jpmc26 Jan 29 '18 at 8:19
15

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.

  • Hey! Good point - good info re. the costs of B.Y.O.D. It doesn't apply to my circumstances (can't go into that), but it's certainly worth considering. – user67312 Jan 28 '18 at 13:06
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    Depends on what the OP does with the laptop outside of work. For me, having two laptops would double the time I spend installing & coordinating tools & code. – jamesqf Jan 28 '18 at 19:37
  • @jamesqf I really want two different computers, at home I have software I paid for myself. Besides, I only setup a computer once maybe every 3 or 4 years from scratch. The cloud also works well. If you are spending the double of time you are doing something wrong. – Rui F Ribeiro Jan 29 '18 at 2:22
  • @Rui F Ribeiro: You actually pay for software? Maybe we're just doing different things (and of course the OP might be doing something different still...), but I've spent several hours over the last week upgrading the OS on my main compute machine, and tracking down all the subtle differences that cause things not to work - like OpenMPI not being installed in /opt, so I can easily switch between it an MPICH... – jamesqf Jan 29 '18 at 4:03
  • @jamesqf Besides having a laptop with OpenBSD and being a Linux sysadmin by trade, I also have two Macbook Pros at home. I do make a point of paying for some software, both for not having software from dubious sources, and also for contributing for the authors to put forward new versions (paid versions of VmWare Fusion, Hopper and some minor utilities. I was also once a software dev by trade, and also hacked a lot of software in my uni days, time to give something back. – Rui F Ribeiro Jan 29 '18 at 14:13
8

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.

  • Depends how the performance, utility and longevity of the secondhand laptop compare to the new one - not enough information – smci Jan 28 '18 at 16:57
  • @smci according to the Questioner, both are "fit for purpose". – RonJohn Jan 28 '18 at 20:43
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    That's not really an adequate response, since we saw the OP can be bamboozled into thinking 4% APR upfront is interest-free. A $1500 computer which only lasts (say) 12-18 months, and is a sealed non-repairable unit, has less utility than a $2000 computer which lasts 6 years. OP may not be aware of these considerations. I wasn't either until I did a ton of laptop comparison shopping. They matter $$. – smci Jan 28 '18 at 20:54
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    @smci: A) Why would a standard laptop only last 12-18 months? I'm typing this on a T61 Thinkpad which has been my main work machine for a decade. B) Why would you think a laptop is sealed & non-repairable? I've replaced the cooling fan, added more memory and an SSD drive to this one. Basically all you need is a screwdriver & a good pair of tweezers :-) – jamesqf Jan 29 '18 at 3:55
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    @jamesqf you’ve clearly never owned an HP. – Dennis Jan 29 '18 at 4:53
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.


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).

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    Maybe it's just me, but I have a hard time seeing how someone else would have come up with this calculation based on your description in the question. – David Z Jan 28 '18 at 23:58
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    I wonder how to compute that 4% interest per year is 0.25% per month. – dhag Jan 29 '18 at 3:50
  • @dhag check out the Wikipedia link. I followed the example in there. – user67312 Jan 29 '18 at 5:18
  • @DavidZ fair call. When I posted this I wasn't sure what to expect. This is after all, the first question I've asked on here :). – user67312 Jan 29 '18 at 5:19
  • As noted by @dhag, despite you used a Wikipedia link 4% per year isn't equal to 0.25% per month. – Antony Hatchkins Jan 31 '18 at 4:16
2

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.

1

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".

1

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.

protected by Community Jan 29 '18 at 3:34

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