Why do high interest rates discourage people from buying durable goods? Give example to support your answer.
Answer (2)
Durable goods are expensive items that last for a long time—like refrigerators, televisions, computers, or motorcycles. Many Filipinos buy these goods through installment plans or loans. High interest rates make these purchases more expensive over time because people have to pay more money in interest on top of the product’s price.For example, let’s say a family in Iloilo wants to buy a washing machine worth ₱20,000. If the interest rate is low, like 3%, the family may pay only ₱21,000 in total. But if interest rates rise to 12%, they may have to pay ₱24,000 or more in total over 12 months. That’s an extra ₱4,000 they could have used for food, tuition, or savings. Because of this, many people choose to delay or cancel buying these items when borrowing becomes expensive.In the broader economy, if millions of people stop buying durable goods due to high interest rates, the demand for appliances, electronics, and vehicles drops. This affects the businesses that sell them, which may lead to lower sales, job cuts, or even store closures.High interest rates also affect businesses that borrow money to buy equipment or expand operations. So not only are households affected, but entire industries can slow down.The Bangko Sentral ng Pilipinas (BSP) adjusts interest rates to control inflation. But when rates are too high, it can hurt consumption and investment. That’s why interest rates must be carefully balanced.
High interest rates discourage people from buying durable goods because they increase the cost of borrowing money. Durable goods—like cars, appliances, and furniture—are often expensive and typically purchased using credit or loans. When interest rates are high, the monthly payments on loans or credit become more expensive, making these purchases less affordable.Example,If someone wants to buy a car for $20,000 and takes a loan, a high interest rate (e.g., 10%) will result in much higher monthly payments compared to a low interest rate (e.g., 3%). As a result, many consumers may choose to delay buying the car or look for cheaper alternatives, reducing overall demand for durable goods.
