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Should you finance a new Peloton? Experts weigh in on how to afford fitness at home

CNBC Select hears from two financial planners about whether you should pay cash or finance a new fitness bike.

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Source: Peloton

Unsure whether to dip into your savings or swipe your credit card to cover your next major purchase? Email reporter Megan DeMatteo at megan.dematteo@nbcuni.com to share your upcoming purchase and question to be part of CNBC Select's new "Cash, credit or loan?" series.

A popular choice to stay fit during quarantine, Peloton bikes are more affordable than ever thanks to wallet-friendly packages and payment plans available through the popular point-of-sale financing company Affirm.

Bikes run from $1,845 to $2,495, with add-ons like clip-in bike shoes, weights, resistance bands, workout 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 +. Regardless of the plan you choose, you'll pay for the bike over 39 months (just over 3 years).

Given the social distancing limitations of the pandemic, Peloton's financing options might be an affordable way for someone to achieve their fitness goals without leaving home. But is financing a fitness bike better than paying for it with cash?

Ahead, CNBC Select spoke with two certified financial planners to get their take on how to select the right payment method for your wallet.

Alicia R. Hudnett Reiss, CFP

Washington, D.C.
Pay cash or finance? Either (with a few caveats)

"If someone has the income and cash flow to make a large purchase outright in cash (and is also on track with savings), then I think that's fine," says Alicia R. Hudnett Reiss, a D.C.-based financial planner.

But some individuals don't have a lump sum of cash to purchase a big-ticket item, she says, so they have to finance it. And even when you're in a position to pay cash, spreading out the cost through financing has its benefits.

Hudnett Reiss recommends you consider a few factors:

  1. How much will the bike ultimately cost including all of the interest charges? Since Peloton advertises 0% APR for its financing plans (subject to credit approval), you can finance your fitness bike without paying interest. There's no financial incentive to pay cash, other than being able to put the expense out of mind for good and move on.
  2. Be aware there is a credit check. When you apply for financing, Affirm will do a soft pull (meaning it won't ding your score), and your credit score will impact your interest rate. Peloton advertises 0% APR, but it states on the Affirm website that your payment plan may include interest between 10% and 30% if you don't qualify for 0%. The soft pull will show you what rates you qualify for, and you'll have the chance to accept the loan (at which point your activity may be reported to the credit bureaus) or walk away and pay for the Peloton using another method.
  3. How long will you finance it for? The financing for Peloton bikes is three years, but the bike should last much longer than that. In general, you don't want the financing to outlast the actual use/worth of the item you are purchasing. Take travel, for instance. It doesn't make sense to pay for a two-week 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 literally use it every single night," says Hudnett Reiss. "It's well worth the price!"

"Overall, if you finance the Peloton for three years (especially at no interest) and keep/use the bike many years beyond that, then it may very well be a smart financial decision."

Jeanne Fisher, CFP

Nashville, TN
Pay cash or finance? Finance

"A 0% financing offer is tough to beat," says Jeanne Fisher, a Nashville-based certified financial planner.

"You should definitely pay attention to the fine print. Most likely there will be stiff penalties for late payments or a defaulted loan," she adds. Affirm does not charge fees, according to its website, but your behavior may be reported to the credit bureaus and therefore impact your credit score.

Fisher argues that a 0% interest rate is essentially the ability to borrow money for free: "From a purely opportunity cost perspective, it may make sense to accept the loan and invest the cash you do have in something that could grow."

Bottom line

Financing a new Peloton might put the major purchase within reach, but make sure your payments are affordable first. Before financing any large item, check your budget to ensure you have enough left over after obligations like food, housing, transportation are covered first.

Ideally, you should also have a safe amount put aside in emergency savings before making any major purchase and have any debt repayment under control.

Always read the fine print, but you should feel good about taking advantage of the opportunity to borrow money for free. Even better, if you have the cash on hand to pay for it upfront, come up with another plan for your money. You could invest it, or put it into a high-yield savings account.

One option might be to finance the Peloton and put the $2,495 you would have spent upfront into a three-year CD account instead. With a fixed interest rate of 0.75%, the First National Bank of America CD offers an APY that's more than double the national average. In three years, your new Peloton will be paid off and you would have earned a little bit of extra cash on your savings.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.