Is cash the only payments method the government wants?

Governments often accept payments by card, but they may ask for a few percent extra, because "taking" a few percent is how the credit card companies make their money. For example, when you use a card to purchase $100 of stuff from a store, the credit card company only pays the store $97. Governments want the entire $100,so they'll charge you extra for the convenience of using a card.

One thing I think Sal forgot to mention is that if you don't have a credit card, the rent-to-own has no credit check. It might be a good option for people who don't have a high credit score.

OK. Rent-to-own has no credit check, but the interest charged by such companies is extremely high. One might do better by going without whatever item one was considering renting (to own) or by getting something at a thrift store to use while saving up the money to buy a new item from a legitimate store. Rent-to-own is a parasite, preying on poor people. It is not a "good" option.

How many credit cards at a store should have?

find having more than two credit cards to be a matter of vanity, which I try to avoid. Even having two can sometimes be "one too many." But having one seems to be necessary for life in the 21st century.

I'm kind of confused, so you don't pay the APR if you pay back within the grace period, but then what counts as late for the late fee? How long can you delay and pay APR before it's "late". I plan on paying by the grace period, but just want to know all the possible scenarios.

Let's start with an example. Assue that you already have a credit card. On the first day of the month, you buy a lot of new computer games, and charge them all to your credit account. They cost you $100. That's when the "grace period" begins. When your bill comes, if you pay it right away, you only pay $100, and all is square. If you pay only $20, you're still "on time", but the next month you owe the remaining $80 PLUS interest on the loan, computed at the APR. If, however, you fail to make your payment on time, you owe the $100 PLUS the interest on the loan (calculated at the APR) PLUS the late fee, and if you let it go another month, you owe all of that PLUS interest on the late fee calculated at the APR. The moral of the story is, pay on time.

if I do rent to own can I cancel it in one of the 11 months?

"Rent to own" is often seen as a plague on poor people. If you can afford to stay away from it, you would likely be better off.

is cash the only payments method the government want

Since payment companies (which operate credit cards) take a "cut" of what flows through them, governments are reluctant to receive payments by credit card, because they lose money to the companies to make things convenient for you.

Main content

Course: Financial Literacy > Unit 3

Lesson 3: Payment methods

Scenario: comparing payment methods

Name: Scenario: comparing payment methods
Uploaded: 2022-11-29T23:56:46.606216556Z
Description: How do you decide which payment method is best? Let's look at cash, credit card, store credit, rent-to-own, and layaway as payment choices, compare the pros and cons of each, and learn about the thought process that helps us decide on the best one.

Google Classroom

How do you decide which payment method is best? Let's look at cash, credit card, store credit, rent-to-own, and layaway as payment choices, compare the pros and cons of each, and learn about the thought process that helps us decide on the best one. Created by Sal Khan.

Want to join the conversation?

Sort by:

Ethan
Posted a year ago. Direct link to Ethan's post “I'm kind of confused, so ...”
I'm kind of confused, so you don't pay the APR if you pay back within the grace period, but then what counts as late for the late fee? How long can you delay and pay APR before it's "late". I plan on paying by the grace period, but just want to know all the possible scenarios.
Button navigates to signup pageComment on Ethan's post “I'm kind of confused, so ...”
(1 vote)
Answer
- David Alexander
  Posted a year ago. Direct link to David Alexander's post “Let's start with an examp...”
  Let's start with an example. Assue that you already have a credit card. On the first day of the month, you buy a lot of new computer games, and charge them all to your credit account. They cost you $100. That's when the "grace period" begins.
  
  When your bill comes, if you pay it right away, you only pay $100, and all is square.
  
  If you pay only $20, you're still "on time", but the next month you owe the remaining $80 PLUS interest on the loan, computed at the APR.
  
  If, however, you fail to make your payment on time, you owe the $100 PLUS the interest on the loan (calculated at the APR) PLUS the late fee, and if you let it go another month, you owe all of that PLUS interest on the late fee calculated at the APR.
  
  The moral of the story is, pay on time.
  Button navigates to signup page
  (14 votes)
Kayla Gonzalez
Posted a year ago. Direct link to Kayla Gonzalez 's post “Is cash the only payments...”
Is cash the only payments method the government wants?
Button navigates to signup pageButton navigates to signup page
(4 votes)
Answer
- David Alexander
  Posted a year ago. Direct link to David Alexander's post “Governments often accept ...”
  Governments often accept payments by card, but they may ask for a few percent extra, because "taking" a few percent is how the credit card companies make their money. For example, when you use a card to purchase $100 of stuff from a store, the credit card company only pays the store $97. Governments want the entire $100,so they'll charge you extra for the convenience of using a card.
  Comment on David Alexander's post “Governments often accept ...”
  (8 votes)
SnowyRawrGamer
Posted 7 months ago. Direct link to SnowyRawrGamer's post “One thing I think Sal for...”
One thing I think Sal forgot to mention is that if you don't have a credit card, the rent-to-own has no credit check. It might be a good option for people who don't have a high credit score.
Button navigates to signup pageButton navigates to signup page
(4 votes)
Answer
- David Alexander
  Posted 7 months ago. Direct link to David Alexander's post “OK. Rent-to-own has no cr...”
  OK. Rent-to-own has no credit check, but the interest charged by such companies is extremely high. One might do better by going without whatever item one was considering renting (to own) or by getting something at a thrift store to use while saving up the money to buy a new item from a legitimate store.
  Rent-to-own is a parasite, preying on poor people. It is not a "good" option.
  Button navigates to signup page
  (6 votes)
Kayla Gonzalez
Posted a year ago. Direct link to Kayla Gonzalez 's post “How many credit cards at ...”
How many credit cards at a store should have?
Button navigates to signup pageButton navigates to signup page
(3 votes)
Answer
- David Alexander
  Posted a year ago. Direct link to David Alexander's post “find having more than two...”
  find having more than two credit cards to be a matter of vanity, which I try to avoid. Even having two can sometimes be "one too many." But having one seems to be necessary for life in the 21st century.
  Button navigates to signup page
  (3 votes)
C4LOwenZ
Posted 9 months ago. Direct link to C4LOwenZ's post “Does the grace period app...”
Does the grace period apply immediately after you complete a purchase?
Button navigates to signup pageComment on C4LOwenZ's post “Does the grace period app...”
(2 votes)
Answer
logzilla117
Posted 4 months ago. Direct link to logzilla117's post “if I do rent to own can I...”
if I do rent to own can I cancel it in one of the 11 months?
Button navigates to signup pageButton navigates to signup page
(1 vote)
Answer
- David Alexander
  Posted 4 months ago. Direct link to David Alexander's post “"Rent to own" is often se...”
  "Rent to own" is often seen as a plague on poor people. If you can afford to stay away from it, you would likely be better off.
  Button navigates to signup page
  (2 votes)
tonit1001
Posted 3 months ago. Direct link to tonit1001's post “is cash the only payments...”
is cash the only payments method the government want
Button navigates to signup pageButton navigates to signup page
(1 vote)
Answer
- David Alexander
  Posted 3 months ago. Direct link to David Alexander's post “Since payment companies (...”
  Since payment companies (which operate credit cards) take a "cut" of what flows through them, governments are reluctant to receive payments by credit card, because they lose money to the companies to make things convenient for you.
  Button navigates to signup page
  (2 votes)
ctinsley2025
Posted 3 months ago. Direct link to ctinsley2025's post “how long before i can can...”
how long before i can cancel a plan
Button navigates to signup pageButton navigates to signup page
(1 vote)
Answer
- >: #BringBackBackgrounds
  Posted 3 months ago. Direct link to >: #BringBackBackgrounds's post “For most plans offered by...”
  For most plans offered by companies (at least the ones I know), you can cancel the plan early and still be able to use the card until the time for the plan renewal, if that's what you're talking about.
  Button navigates to signup page
  (1 vote)
Jocaymi Canela
Posted 2 months ago. Direct link to Jocaymi Canela's post “how long until you have t...”
how long until you have to cancel the plan?
Button navigates to signup pageButton navigates to signup page
(1 vote)
Answer

Video transcript

- [Instructor] Let's say that we have decided to buy a television for $499. And we now need to think about how we are going to pay for this $499 television. And we know we have many different options, and I'm presenting five of them to you in this video. We could pay with cash slash debit, we could pay with a credit card, store credit, rent-to-own or layaway, and the different terms are available. So pause this video and think about in what scenarios would you pick different options, and then we will work through it together. All right, so let's think about the first scenario where you have money now. So you have at least, let's say, $500 in your bank account. Have money now. Well then of course, paying with cash slash debit is an option, and it's never a bad option. Now you could pay with the credit card, but in that scenario, I would encourage you to pay the balance off within the 28-day grace period, so that you don't pay this almost 19% APR. That is very high interest that you want to avoid. So here, I'm just gonna put an asterisk here. Pay off. Pay off in grace period. In grace period. And we could think about the store credit the same way. The store credit's at six months interest-free financing. So you could view it as a six month grace period. So I could check that, but once again I would wanna pay it off in that six months, so that I don't start incurring that interest, which will probably be similar to that credit card interest. Now I know myself psychologically. I like not having to worry about whether I'm paying these things on time. So for me personally, I definitely would gravitate towards the cash slash debit. Now, some folks, the credit card might have some rewards that you get back. They don't mention them here, but that might be an incentive. But the reason they do that again is that they hope that you don't pay in that grace period, and you start incurring this really, really high interest. Now, rent-to-own would not make sense. You have the money, and we could see what this is costing you, $45 per month for 12 months. Multiply that out, how much are you paying? Well it turns out you're paying more than $500, 45 times 12, you are paying $540 here. So for the privilege of renting to own, you're paying an extra $41 over that 12 months. So there is some interest in there, just in terms of that extra money that you're paying. It's just not called interest. And then once again, layaway, you don't even get the television now, even though you want the television now, and you're paying a $5 setup fee. So that's money that you wouldn't otherwise have to spend if you just paid it in cash or did some of the other options. So I would definitely go with one of these first three, probably the cash debit. Now if you don't have the money, so don't have money, don't have money now. I would try to stay away from that credit card, because that's a really, really, really, really high interest rate. I think if you think you can get that money within the next six months, this six month interest-free financing from the store sounds pretty good. If within six months you can save up the money and you're gonna get the TV now, then you can pay that down and pay it off in this interest-free period. Once again, I'd be wary if you have to go beyond that. The rent-to-own is definitely worse than the store credit if you're able to pay it off within six months. If you think it'll take you 12 months or more to pay it off then you have to think about what would be the interest on the store credit, and then what is the interest that this roughly $40 that they're charging to you. What does that amount to roughly? $40 on roughly $500 over 12 months is roughly 8% interest. So it's still better than a credit card. So if you don't have the money within the next six months, if you're talking 6 to 12 months, you have to know a little bit more about the interest on the store credit to decide between these two. And then once again, if you don't have the money now, the store credit is still better than the layaway, because you're not having to pay this $5 and you get the TV immediately, while in layaway the TV just gets laid away someplace in the back of the store, no one else could buy it. But you're not going to see that TV until you pay for it. While with the store credit, you're going to get it immediately. So my bias, if you have the money now, cash debit, maybe credit card if you're disciplined about paying it off fast. And then if you can save up the money in the next six months, the store credit looks pretty good with the interest-free financing.