The Real Cost of Financing a Luxury Watch in Today's Market

Luxury watches are not just timepieces; they are investments, status symbols, and heirlooms. With rising retail prices and the increasing popularity of financing options, understanding the true cost of financing a luxury watch is more important than ever.

How Financing Works for Luxury Watches

Imagine purchasing a CHF 10,000 watch over a 36-month financing plan. At an annual interest rate of 9.95%, the cost breaks down as follows:

• Interest Costs: CHF 512 per year, equivalent to 5.12% of the purchase price.

• Tax Deductions: Since interest costs are tax-deductible, the net annual interest cost is reduced to CHF 384, or 3.84% of the purchase price.

This allows buyers to lock in today’s price while spreading the payments to better align with their monthly income.

The Impact of Price Inflation

Retail prices for luxury watches have steadily risen by 3% to 5% annually over recent years. Financing not only makes a watch more affordable upfront but also shields buyers from future price increases. The cost of price inflation, represented visually in financing models, highlights the value of securing today’s prices.

0% Financing: A Cost to Merchants

Many merchants offer 0% financing, also known as Buy Now, Pay Later (BNPL), as a way to attract customers. While this may seem like a win for buyers, it comes with significant costs for sellers:

• Merchant Costs: The cost of offering 0% financing for a 36-month term can exceed 15% of the purchase price.

• Industry Misconceptions: In our recent survey, most respondents underestimated the cost to merchants, guessing it to be below 8% for 36 months. However, rising refinancing costs have dramatically increased these expenses.

Balancing Emotional and Rational Decisions

Purchasing a luxury watch is both an emotional and rational decision. Buyers weigh the joy of ownership and the watch’s long-term value against the cost of financing. These dynamics are echoed in the 2023 Deloitte Swiss Watch Industry Study, which emphasizes the multifaceted considerations driving customer decisions.

Conclusion: Why Financing Is a Smart Choice in the Face of Price Inflation

According to Bilanz (a Swiss business magazine and publication), luxury watch prices have risen more than twice as fast as general inflation since 2000. For example, a watch that cost CHF 10,000 a decade ago might now be priced at up to three times that amount. This surge in prices has not only excluded many potential buyers but also prompted affluent customers to scrutinize value for money in their luxury purchases.

Salaries in key markets / countries for the Swiss watch industry have struggled to keep pace with inflation, further shrinking the pool of potential buyers.

For many, financing or the option to pay monthly provides a practical solution to purchase their perfect luxury watch without further suffering from future retail price increases. By locking in today’s price and spreading the payments over 12 to 60 months, buyers can protect themselves from future price hikes while making a smart financial decision based on historical trends.

Key Takeaways

• Financing spreads costs over time, making luxury watches more accessible.

• Rising retail prices make locking in today’s price advantageous.

• 0% financing is attractive for buyers but costly for merchants, especially with longer terms.

• Emotional and financial factors both play a significant role in luxury watch purchases.

Whether you’re a buyer looking to finance your dream watch or a merchant considering offering 0% financing, understanding these costs and benefits is crucial. What do you think about the balance between financing costs and price inflation? Let us know in the comments below!