When Interest Free Is Really, Really Expensive

When Interest Free Is Really, Really Expensive

Eyeing a new TV ahead of Super Bowl Sunday? Retailers' attractive interest-free deals could cost you double. By BRETT ARENDS Even in this economy, some will want to watch the Super Bowl on the biggest, flattest, highest-definition TV they can afford. Flat-panel wide screen televisions

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  1. #1
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    Default When Interest Free Is Really, Really Expensive

    Eyeing a new TV ahead of Super Bowl Sunday? Retailers' attractive interest-free deals could cost you double.

    By BRETT ARENDS

    Even in this economy, some will want to watch the Super Bowl on the biggest, flattest, highest-definition TV they can afford.

    Flat-panel wide screen televisions display a football player a Best Buy store January 31, 2006 in Niles, Illinois.

    But there's a you-make-the-call moment before you buy.

    When can a $1,500 television actually end up costing you a whole lot more? When you buy it on one of the "no interest for 36 months" promotions currently on offer and then post one late payment at any time between now and January 2012.

    These deals, on offer at many retailers around the country, may look attractive at first glance, especially in this pinched environment. Sales staff will often pitch these offers to you right at the end of the sales process, when you are at the counter getting out your wallet. You may be busy or distracted. You may be in a hurry after spending too much time in the store.

    Don't do it.

    These deals are the shopping-center equivalent of negative amortization loans, the mortgages that often send homeowners further into debt each month.

    Consider, for example, the "interest free" deal offered by the country's biggest electronics retailer, Best Buy. The contract, unfortunately, is typical of those in the industry.

    First, you don't actually get the full value of the loan interest free for 36 months. You have to pay a small amount of it back each month.

    OK, that's 36 separate monthly payments.

    A lot of things are going to happen between now and January 2012. You may change jobs. You may even lose your job. You may move homes. Children will get sick. Family members may be rushed to the hospital. Pets will chew the mail. Paperwork will mysteriously vanish or get thrown out by accident with old newspapers. Life is like that.

    But woe betide anyone who signs up for this "no interest" deal and is then late with a single one of those monthly payments. Even by a day.

    If you do, the deal suddenly gets altered. Big time.

    Did we say "interest free"? Ha ha. No longer. You are now paying interest on your loan. And not just 5% or 10%.

    Try rates between 21% and 30%.

    No kidding. Thirty percent.

    Paging Chili Palmer!

    If you think the bad news stops there, think again. If you miss a payment, you don't just have to pay interest on the remainder of the loan.

    The interest is backdated. To the date of purchase.

    This isn't a contract with the customer. This is a contract on the customer.

    (Granted, you can set up automatic monthly payments online with the retailer, which minimizes the late payment risk. But if you're ever short of cash in your bank account and the payment doesn't go through, you face the same problem.)

    No one in their right mind would sign up to pay 30% annual interest for three years least of all for a TV set that is already falling in value faster than a Las Vegas condo.

    Depending on how the interest is compounded, that could more than double the total cost.

    I contacted Best Buy for a comment. It responded that the company, and the credit-card issuer that finances the deal, HSBC, are "committed" to making sure the terms "are clear and useful for the consumer to make an informed decision." It added that HSBC is "always available to help customers address their specific concerns."

    These deals are being offered by retailers all around the country, mostly on big-ticket items. Maybe they are supposed to take advantage of people's ignorance, or worse, their financial desperation.

    Obviously some are signing up, or retailers wouldn't continue to offer these loans. Best Buy declined to say how many customers have signed up, let alone how many people have missed a payment deadline.

    If you have already signed up for a deal, pay it off immediately if you can.

    If you are someone caught after missing a single payment, you might try calling up and putting pressure on the lender to give you a pass. There is no guarantee whatsoever that they will do so. But it's worth a try. Sometimes they will. The squeaky wheel gets the grease.

    Source:
    http://online.wsj.com

  2. The Following 14 Users Say Thank You to d_awalker For This Useful Post:


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    Default Re: When Interest Free Is Really, Really Expensive

    Another way they get you is the rental places. Sure the low payments are appealing at times but when you end up paying 1000.00 by the end for a 200.00 product it becomes not so appealing.
    Mdowdy

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    Default Re: When Interest Free Is Really, Really Expensive

    What this comes down to is people do not read the fine print. Always read the fine print and if you take out payments on an item, you should know exactly what the consequences are for missing payments. Good post, thanks for the information.
    Mdowdy

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    Default Re: When Interest Free Is Really, Really Expensive

    Quote Originally Posted by mdowdy View Post
    Another way they get you is the rental places. Sure the low payments are appealing at times but when you end up paying 1000.00 by the end for a 200.00 product it becomes not so appealing.
    Years ago, my husband worked for those rental places. I remember him saying he could not believe how many people would purchase those items EVEN WHEN they had to read the contract in front of them as they initialed it. Usually the customer would always say they were going to pay the contract out during the "90 days same as cash" period. He said that usually less than 5% would actually do it.

    Sad, but often people will pay for an item if it falls in line with their pay schedule AND they want it. Even if they end up paying over 1000 bucks for a playstation.


    April

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    Default Re: When Interest Free Is Really, Really Expensive

    Quote Originally Posted by mdowdy View Post
    Another way they get you is the rental places. Sure the low payments are appealing at times but when you end up paying 1000.00 by the end for a 200.00 product it becomes not so appealing.
    I agree, 100%.


    I learned this the hard way!
    Terra , Wife to Kevin, Mom to Cassidy (12) and Ciara (2)

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    Default Re: When Interest Free Is Really, Really Expensive

    Another ploy to get people to live beyond their means. We would all be so much better off to just save for what we want and look forward in anticipation rather than look backward with regret.
    Niddi

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    Default Re: When Interest Free Is Really, Really Expensive

    Unfortunately the old adage "make do with what you have" was down played and "buy now, pay later" became the norm. I am hoping that people will go back to the "make do with what you have" mentality until they have saved and can afford it.

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    Default Re: When Interest Free Is Really, Really Expensive

    Quote Originally Posted by d_awalker View Post
    Unfortunately the old adage "make do with what you have" was down played and "buy now, pay later" became the norm. I am hoping that people will go back to the "make do with what you have" mentality until they have saved and can afford it.

    I agree.

    I think that more people are going back to basics because of the economy.
    The rule in our house no: If we cant pay cash for it, we dont get it.
    Terra , Wife to Kevin, Mom to Cassidy (12) and Ciara (2)

 

 
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