Thursday, August 23, 2007

Why same as cash offers stink

A friend bought a TV with the 1 yr no interest no finance charges. Had been paying perfectly on time, sometimes extra dollars toward their new TV.

On her next to last payment - she was late by 1 day. She opened her next statement...and saw $800 in interest. Yes even though she only had a $300 balance...they charged her interest going back to the original purchase amount.

Was I surprised? No way!

Here's how most of these deals work. If you borrow $1,000 on a 12 month same as cash plan, you have to pay it back within 12 months to avoid interest. That much is obvious. However, the term "same as cash" is very misleading because most of these deals are actually deferred interest payment plans. So, if you borrow $1,000 and pay $950 of it in 12 months and still owe $50, you will be charged interest on $1,000, not on $50! In other words, you will be charged back interest on the full amount regardless of the amount you paid on the loan during the 12 month "same as cash" period

We see these all the time on TV from appliances to furniture. While they may sound good, if you are late at all you will be paying BIG TIME for it. And credit card or financing companies are just so happy to get your money!

I have done the same as cash as few times, but luckily I haven't been burnt on it. However, if I won't do anymore of them. I will be paying cash!!


WesternWarmth said...

Very good post. People need to know the truth about these offers and often don't take time to study the fine print. Thanks for sharing!

too embarassed to say :) said...

Great post! Also, even the "no interest for x months" deals end up biting the buyer. Very often a "mistake" (in their favor, of course) happens and lo and behold, you still owe them $.15 AND all of the interest. This happened to us, before we started listening to Dave Ramsey, and Home Depot slaped us with all kinds of interest at the last second. Kind of like how the satellite companies like to send that $600 bill for their equipment that you already returned, KWIM?