Should You Pay in Cash or Installment? How the Time Value of Money Affects Your Everyday Spending

You’re at the appliance store, finally ready to buy that washing machine you’ve been saving up for. The staff smiles and tells you:

“Ma’am, same price po kahit installment — 0% interest for 12 months!”

You pause. Should you pay the full price now, or go for the “easy” installment plan?

At first, it feels like a win-win. But here’s where a simple money concept called the Time Value of Money (TVM) can help you decide the real best option.

What is the Time Value of Money?

In everyday terms:

Money you have now is worth more than the same amount in the future.

Why? Because money today can grow — through savings, investments, or even just avoiding inflation.

If you have ₱20,000 today, that money has earning power. If you delay using it wisely, you’re missing out on potential income.

We’ll walk through 3 everyday buying decisions to show how TVM works and how it can save (or lose) you money.

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Scenario 1:

Cash Discount vs. Installment Markup

You’re buying a washing machine.

• Cash price: ₱18,000

• Installment price: ₱1,800/month for 12 months

• Total Installment Cost: ₱21,600

• Difference: ₱3,600 more

Question: Is it worth paying more for convenience?

Here’s a quick comparison:

Comparison Table:

TVM Insight:

If you already have ₱18,000 and don’t need the installment, you’re paying extra just to delay the payment. That money could have been used for something better, like savings or investments.

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Scenario 2:

Installment is Same as Cash Price — Should You Still Pay in Full?

You have ₱20,000 and you’re offered this:

• Cash price: ₱20,000

• Installment: 12 months, ₱1,666.67/month

• 0% Interest Promo

Looks like there’s no difference… right?

But what if instead of handing over the full ₱20,000, you save it in a digital bank earning 5% annual interest, and just withdraw monthly to pay the installment?

Here’s what happens:

Interest Earnings from Diminishing Balance:

Total Interest Earned: ₱460.70

Even if you paid the same amount, you still earned nearly ₱500 just by letting your money sit in a digital bank.

TVM Insight:

This is the kind of “invisible advantage” most people don’t notice. The bank made your money work while you slowly paid off the item.

Imagine doing this for multiple purchases each year. Your money keeps working for you while you spend.

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Scenario 3:

What If You Invest the ₱3,600 You Saved?

Going back to Scenario 1:

You had the option to pay ₱21,600 via installment —but instead, you paid ₱18,000 in cash.

That means you saved ₱3,600 just by choosing the discounted cash price.

Now, what if you invested that savings in Pag-IBIG MP2 at 7% interest?

Investment Simulation:

TVM Insight:

You didn’t just save ₱3,600, you made it work for you and grow over time.

And if you do this consistently — choose cash discounts and invest the savings — your small wins can turn into real gains.

What’s the Wais Move?

There’s no single answer that fits all, but understanding the Time Value of Money helps you choose what’s best for you based on your goals and situation.

Use Cash If:

✅ There’s a discount

If paying in full gives you a lower price — go for it! Discounts are instant savings.

For example, if the cash price is ₱18,000 and the installment price is ₱21,600, you’re basically saving ₱3,600 just by paying upfront.

That’s money you can reallocate to your emergency fund, savings, or even groceries.

Think of it this way:
Would you say no to ₱3,600 off if someone offered it to you for free? Of course not!

✅ You have extra cash and no other urgent use for it

If you’ve already set aside funds for your essentials — emergency fund, bills, tuition — and the money you’re planning to use isn’t tied to something urgent, then cash can be the cleaner option.

You avoid monthly payments and you get the item right away with no future obligations.

Just make sure: paying cash won’t leave you broke right after the purchase.

✅ You want to avoid long-term obligations

Installment plans are commitments. If you’re the type who doesn’t like juggling bills every month, cash gives you freedom.

No due dates. No stress. No risk of forgetting a payment and getting charged penalties.

Peace of mind is priceless, especially when your budget’s already tight.

✅ You prefer peace of mind, one-and-done

Life is already full of surprises. Sometimes, it’s better to pay once, get it over with, and never worry about it again.

Cash lets you move on — no mental clutter, no spreadsheets, no reminders.

If you’re the kind of person who sleeps better without utang, cash might be the better path.

Use Installment If:

✅ You don’t have the cash yet

Sometimes, emergencies happen or you need something now (like a broken ref or a laptop for work), but your savings can’t cover it.

If the installment doesn’t have added interest and fits your monthly budget, it’s a helpful way to get what you need without draining your wallet in one go.

Just be sure you’ll be able to sustain the monthly payments consistently.

✅ The installment price = cash price

This is where it gets interesting.

If there’s no price difference and no hidden fees, then the installment might be more practical — especially if you already have the money and can let it earn interest in a digital bank, while slowly paying off the item.

Let your money work for you in the background, even as you use the product.

✅ You can invest the cash and earn more over time

Let’s say you already have the full amount, but instead of paying in full, you choose the installment and place your money in an MP2 account or a high-yield savings account earning 4–7% per year.

You’re using your money wisely by taking advantage of the Time Value of Money.

As long as you’re not spending the money on unnecessary stuff, this is a strategic move!

✅ You’re disciplined with monthly payments

Installment is only a good option if you manage it well. That means no missed payments, no late fees, and no swiping your card just because “maliit lang naman monthly.”

If you can stay consistent, follow a budget, and avoid carrying multiple utang at once — then installment can be a helpful tool.

But if you tend to forget or overspend… maybe stick with cash first.

Let’s Talk!

Have you ever bought something on installment and later regretted it? Or paid in cash and realized you could have used that money better?

Share your story in the comments. I’d love to hear what you’ve learned, and your fellow readers might benefit too!

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