Select’s editorial team works independently to review financial products and write articles that our readers will find useful. We may receive a commission when you click on links to products from our affiliate partners.

Confused about whether to dip into your savings or swipe your credit card to cover your next big purchase? Email reporter Megan DeMatteo at [email protected] to share your next purchase and your question to be part of the new “Cash, Credit or Loan?” by CNBC Select? series.

A popular choice for staying in shape during your forties, Peloton bikes are more affordable than ever with wallet-friendly packages and payment plans available through the popular point-of-sale financing Affirm business.

Bikes cost between $ 1,845 and $ 2,495, with additions such as clip-on bike shoes, weights, resistance bands, training mats available depending on the package. Payment plans start as low as $ 49 per month for the Peloton Bike plan and increase to $ 64 per month for the Peloton Bike +. Whichever plan you choose, you’ll pay for the bike over 39 months (just over 3 years).

Given the social distancing limits of the pandemic, Peloton’s funding options could be an affordable way for someone to achieve their fitness goals without leaving home. But is it better to finance a fitness bike than to pay for it in cash?

Forward, CNBC Selection spoke with two certified financial planners to find out how to select the right payment method for your wallet.

Alicia R. Hudnett Reiss, CFP

Washington DC
Pay cash or finance? Either (with a few caveats)

“If someone has the income and cash flow to make a big cash purchase (and is also on the way to saving) then I think that’s fine,” says Alicia R. Hudnett Reiss, a CD-based financial planner.

But some people don’t have a lump sum to buy an expensive item, she says, so they have to fund it. And even when you are able to pay cash, spreading costs through financing has its benefits.

Hudnett Reiss recommends that you consider a few factors:

  1. How much will the bike ultimately cost, including all interest charges? Since Peloton advertises 0% APR on its financing plans (subject to credit approval), you can finance your fitness bike without paying interest. There is no financial incentive to pay cash, other than being able to forget the expenses for good and move on.
  2. Know that there is a credit check. When you apply for financing, Affirm will perform a gentle pull (meaning it won’t lower your score) and your credit score will impact your interest rate. Platoon advertises 0% APR, but it says on the Affirm website that your payment plan may include interest between 10% and 30% if you are not eligible for 0%. The soft pull will show you what rates you are eligible for and you will have the option to accept the loan (when your activity can be reported to the credit bureaus) or walk away and pay the Platoon using another method.
  3. How long are you going to finance it? Funding for Peloton bikes is three years, but the bike is expected to last much longer than that. In general, you don’t want the financing to last longer than the actual use / value of the item you are purchasing. Take travel, for example. It doesn’t make sense to pay two weeks of vacation with a loan that you have to pay back over two years.
  4. How often will you use the item? “I bought my treadmill about six years ago and I use it literally every night,” says Hudnett Reiss. “Well worth the price!”

“Overall, if you fund the Peloton for three years (mostly interest free) and keep / use the bike for many years beyond that, then this may very well be a wise financial decision.”

Jeanne Fisher, CFP

Nashville, TN
Pay cash or finance? Finance

“A 0% financing offer is hard to beat,” says Jeanne Fisher, a certified financial planner based in Nashville.

“You absolutely have to pay attention to the fine print. There will most likely be severe penalties for late payments or a delinquent loan,” she adds. Affirm does not charge a fee, depending on his website, but your behavior may be reported to the credit bureaus and therefore have an impact on your credit score.

Fisher argues that an interest rate of 0% is essentially the ability to borrow money for free: “From an opportunity cost perspective, it may be wise to accept the loan and invest in it. money you have in something that could grow. “

At the end of the line

Financing a new Platoon can put the major purchase within reach, but first make sure your payments are affordable. Before funding a large item, check your budget to make sure you have enough left after obligations like food, accommodation and transportation are covered first.

Ideally, you should also have a safe amount set aside in emergency savings before you make a major purchase and have your debt repayments under control.

Always read the fine print, but you should feel good about taking the opportunity to borrow money for free. Better yet, if you have the cash to pay up front, come up with another plan for your money. You could invest or put it in a high yield savings account.

One option might be to fund the Platoon and put the $ 2,495 you would have spent up front in a three-year period. CD account instead. With a fixed interest rate of 0.75%, the National Bank of America debut CD offers an APY more than double the national average. In three years your new Platoon will be paid off and you would have earned some extra money on your savings.

Editorial note: The opinions, analyzes, criticisms or recommendations expressed in this article are those of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.