Cost of Borrowing on a $400 PS5 – It's Worse Than You Think

Have you ever wondered if purchasing a seemingly small-ticket item—like a $400 PlayStation 5—could be quietly draining your wallet more than you think? Especially in a high-tax state like California, the cost of borrowing can turn an affordable purchase into a surprisingly expensive endeavor. In this blog post, we’ll break down exactly how taxes, credit card interest, and payment strategies can seriously affect your finances.

Why Your $400 Purchase Isn’t Just $400

Let’s say you make about $100,000 per year in California. Accounting for income taxes, you take home around $70,000 (a 30% rate). On top of that, you’ll also pay a 7.25% sales tax in California. This means a $400 PS5 actually costs $430 at checkout ($400 + 7.25% = $430). Keep in mind, you already paid income tax on the money you’re using to make this purchase.

The Price of Credit Card Interest

Suppose you put the purchase on a credit card with a 30% APR. If you only pay the minimum of about $12 per month, the interest charges stack up:

• Payoff time: 9 years and 1 month
• Total cost of borrowing: $725.60
• Total amount paid: $1,125.60

Making an additional $5 payment each month (i.e., paying $17 instead of $12) dramatically changes the picture:

• Payoff time: 5 years and 6 months
• Total cost of borrowing: $249.30
• Total amount paid: $679.30
• Interest savings: $476.30

Breaking Down the Real Cost

Below is a quick table comparing these two scenarios. Notice how something that starts off as a $400 purchase ends up costing far more once interest and taxes are considered.

Hours Worked and Effective Hourly Rate

Now, assume you earn $50/hour. First, let’s see how many gross dollars you need to earn for both scenarios, and then how the actual money is distributed:

Finally, if you step back and look at the fact that the PS5 itself is only worth $400, yet you’ve invested far more time and money in it, you can see how borrowing reduces your effective hourly income. Here’s what happens if you consider you only “got” $400 in value from those hours worked:

When you spread your payments out over many years at a high interest rate, you’re essentially lowering your real earning power. Paying off purchases faster or avoiding high interest altogether is key to protecting your finances and maintaining a higher effective hourly rate.

The big takeaway is this: the cost of borrowing can quickly inflate the price of a simple $400 purchase, in both real dollars and in time invested.