With the holiday season upon us, we thought we’d take a break from the traditional mortgage-related tips and tricks and delve into something that may be all too common this holiday season. No payments and no interest for.
You’ve probably seen those offers for no payments and no interest for 24 months or something similar. Many times these offers are to entice consumers to spend money on high priced items like plasma TVs and other high-end electronics. The idea of 0% interest and no payments for so many months is a tough offer to pass up, especially if the item was on your “to-buy” list to begin with. Why not take it, after all, it’s like a free loan, right? Not necessarily.
The Smoke And Mirrors Behind Many No Payment/No Interest Offers
If someone tells you that you can purchase that huge, 60 inch plasma screen today, and not have to worry about payments for a year or two, you may think, “Why not?” But it’s what these types of offers don’t clearly disclose that can end up costing you big money.
What they don’t tell you is that, many times, if you don’t pay for the item in full before the end of the no payments, no interest offer, all of the interest that you supposedly weren’t charged during the first 24 months, or however long the promotional period lasts, gets tacked on to the principal balance. So, the offer should really be rephrased to say, “No payments and no interest for 24 months (as long as you pay the balance in full before month 24).”
What Kind of Costs Are We Talking About Here?
Let’s say you found a 60 inch plasma TV on sale for $1,800. Even though you could pay cash, you think to yourself, “if I don’t have to make payments and I won’t be charged interest for 24 months, why not wait until then to pay for this thing?” Fair question. After 24 months, you finally get that first bill; no worries, you planned ahead and set aside $1,800 just for paying the balance in full when the promotional period was over. Then you look at the bill…$2,484!? That must be a mistake. You call the phone number on the bill only to find out from the financing company what the original offer didn’t make so clear. That the interest rate is 19% and if the balance isn’t paid in full before the end of the promotional period, the first 24 month’s worth of interest is tacked onto the principal.
That’s a total of $684 that you shouldn’t have had to pay for to begin with.
How Can You Protect Yourself?
Like any financial transaction, make sure you understand what may be hidden in the fine print. But sometimes the fine print can be pages and pages of legalese; in that case, ask questions, be inquisitive, don’t be afraid to dig deep for the right answers when it comes to your finances. Also, keep in mind a simple principal, if it sounds too good to be true, it probably is.