The signs are everywhere … “Same As Cash!”, “No Down, No Interest, No Payments Until Next Summer!” or a very popular one these days, “0% Interest on Balance Transfers until 2024!”
Maybe you’ve fallen for these promises in the past or are tempted to do that now. With retailers and banks so anxious to improve their bottom lines, deals like that are showing up everywhere, it seems. How do they do that? Or more importantly, why?!
Retailers and lenders aren’t in business to make your life cost less. They don’t even care about you. Their only goal is to make money—not a bad thing, but something you need to keep in mind.
The only way it might be smart to take advantage of no-interest financing and/or a no-payment period is if you are 100 percent sure you will pay the purchase or credit-card balance in full before the end of the promotional period. Otherwise, you might as well stuff pennies in your nostrils now because you’ll end up paying through the nose.
Tell me something: What in life is 100% certain? Come on … dig deep. You know the answer: Not much!
You have no idea what will happen between now when you fall for the unbelievable deal and six months or a year from now when that gigantic balance is due and payable. If you are unable to come up with the cash before the deadline, the company will be more than happy to convert the balance into payments—under the terms buried in the paperwork you will have to sign to close the deal.
Financing specifics offered through retail stores vary from one company to another; laws that regulate these kinds of consumer issues can vary greatly from state to state.
Beware that interest rates on store credit cards tend to be a lot higher than national cards. An entertainment center may not seem so entertaining with 29.99 percent interest tacked on. And if that’s not enough, signing up for financing like this could hurt your credit rating, which is affected by adding new accounts that start out with a big balance equal to the entire credit limit.
Always remember that these no-interest deals mean the interest and payments are being deferred for a period of time, not waived. If you do not keep to the exact terms of the deal, you’ll lose your deferment and the deal will immediately convert to terms that are not in your favor—retroactively to the day you walked out with that fancy new [fill in the blank].
So how can stores afford to make these outrageous deals that appear to be so favorable to the consumer? First, only those with excellent credit scores can quality for the deal as advertised. And even then, statistics show that more than 75 percent of the time, the consumer is unable to come up with the full balance in time to pay it off before it converts into very big monthly payments because stuff happens.
News Flash: Retailers and lenders aren’t in business to make your life cost less. They don’t even care about you. Their only goal is to make money—not a bad thing, but something you need to keep in mind.
So ask yourself this question when you’re tempted to fall for free financing: “If I can’t pay for it now, what makes me believe I’ll have the cash to pay for it in six months or even a year?”
If you’re just sure you’ll be able to save every month to accumulate the cash, do yourself a favor and start saving now. Then walk into the store with cash and you won’t have to fiddle with annoying credit applications and complicated paperwork.