« A Contradiction in Terms or a Smart Decision? »
Does it make sense to buy a luxury watch on credit, or should a purchase like this be paid for exclusively with your own money? That question isn't easy to answer. On the one hand, consumers should ideally avoid going into debt for consumer spending; on the other hand, buying a high-quality luxury watch can also be an investment with the prospect of appreciation. To help our readers decide, we've put together some of the key arguments.
Paying for a Watch in Installments – An Alternative to Buying Outright
Admittedly, for people with no particular connection to watches, buying a luxury watch is hard to justify rationally anyway – especially since the basic task of telling time is now handled by smartphones and the like.
Every watch collector, on the other hand, probably has a wish list of models, some longer than others. For some, it's mainly about finally being able to wear their all-time favorite on the wrist every day; others are still missing this or that precious piece to complete a collection they've built up over many years. Buying right away often isn't possible because of the high price. So it's understandable that many watch enthusiasts would like to pay for watches in installments.
That's why numerous jewelers and watch retailers now offer watch financing as an alternative to buying outright. This applies to brick-and-mortar stores as well as online shops. Each retailer works with selected banks and financing partners. At Uhrinstinkt, too, customers can take out a watch loan and use it to finance luxury watches.
Finance a Luxury Watch or Save Up for the Purchase Price First?
The fundamental question is whether – and in which situations – it makes sense at all to pay for a watch in installments rather than settling the full purchase price at once.
A time-tested rule of business holds that consumption should be funded only from your own liquid assets, never on credit, whereas when making an investment it can be perfectly sensible to use a reasonable share of borrowed capital.
This principle holds true in private life as well. After all, money spent on consumption – an expensive vacation or a lavish party, for example – is gone, while the debt stays with you long afterward. If you run into financial difficulties during that time because your income drops or major unexpected expenses come up, things get tough. If, however, the money goes toward acquiring long-term assets, the situation looks different.
These include, for example, real estate or valuables whose worth may fluctuate over time but is only very rarely lost entirely. They can be sold again if needed, so the proceeds can pay off the remaining balance, or at least part of the outstanding debt.
Whether you should finance a luxury watch or rather do without a watch loan can be answered the same way.
So there's nothing wrong with watch enthusiasts financing luxury watches from a renowned, highly sought-after brand whose products have proven, in experience, to hold their value particularly well.
If you have your eye on an Omega, Tag Heuer, Longines, a Breitling watch or something similar, you'll own something that reliably retains its value. If, however, it's a less sought-after brand or a model that isn't particularly popular among collectors, buying with a watch loan would be closer to credit-financed consumption and should only be done with particular caution.
Finance a Luxury Watch Instead of Missing Out
In some cases, a watch loan can be the decisive opportunity to secure a particularly rare piece. Collectors and watch enthusiasts can, for instance, finance luxury watches in order to acquire a specific limited edition before it sells out.
If the rare watch then appreciates quickly and significantly, buying it with a watch loan may pay off before long. And anyone who has already assembled several sought-after collector's pieces in their private collection can take a somewhat more relaxed approach anyway. In that case, looming liquidity problems can, if necessary, be bridged by selling or pawning individual pieces without throwing the entire household budget off balance.
Financing a Watch: Weigh the Alternatives Carefully!
Not all loans are created equal, however: even in a historically unprecedented period of low interest rates, the terms offered by different lenders sometimes vary considerably. A comparison of the APR (annual percentage rate) across different offers makes this clear. The APR matters so much because simply comparing the stated nominal interest rates doesn't account for all financing costs and is therefore less meaningful.
Looking at the APRs of various financing options, it's striking how widely they vary. Some credit card issuers still charge their customers double-digit interest rates, while installment loans are now often available at mid- to low-single-digit rates, making them considerably cheaper than most overdraft facilities as well.
Watch Loans: Often Cheaper Than Overdrafts and Credit Cards
If you want to finance a watch and your bank has granted you a generous overdraft or a high credit card limit, you should ideally use it only if you expect a larger incoming payment within a few days or weeks that will quickly cover the amount borrowed.
Otherwise, a dedicated watch loan or a classic consumer loan is by far the cheaper option for anyone looking to finance a luxury watch.
Financing Luxury Watches – Why Watch Loans Are Often Especially Affordable
There's a good reason why watch enthusiasts can finance their watch comparatively cheaply with dedicated watch loans. Much like an auto loan or a mortgage, where the vehicle or property can serve as collateral for the lender, the same applies to luxury watches.
The risk for banks that finance luxury watches is considerably lower than with an unrestricted consumer loan. If necessary, the bank can liquidate a luxury watch just as it would a car, a house or a piece of land. This is typically reflected in significantly lower interest rates, whereas when pricing a pure consumer loan with no designated purpose and no collateral, the bank has to factor in a higher risk premium.
