Avoid "No Interest and No Payments" Store Financing Offers

You have seen the TV commercials for furniture, appliances and other big box items this holiday season. All of them announcing "no interest and no payments till 20XX". I actually saw a furniture store commercial for no payments and interest till 2012! Those companies are really hurting for sales but are they really offering a good deal to their customers?

I know that we could use some new furniture but I also know better than to take a gamble on our future earnings. Those ads are very attractive to people that cannot afford to buy large ticket items right now. Almost everyone that cannot afford to buy a large item today will think that they will have more income, a better paying job or the economy will turn around in the short term future. Those companies are playing on those thoughts. Are those companies really offering a good deal or not? Let's take a look at those types of financing offers.

One of the main things those ads don't tell you is that the offer is only good for those with good credit. Once you are in the store they run the credit check and either you pass or fail their criteria. If you pass you are feeling pretty good, if you fail they have options. Those options usually are high interest rates.

Another thing they don't mention in the ads is that there is a minimum dollar purchase. Often the amount is $500 or $1000 and up.

Let's say you make a $2000 purchase and don't have any payments till 2010. You say wonderful. Every month you will get a statement with how much you owe. You decide for some reason not to pay for the first few months then you make a few minimum payments of $40 or less. You then become unemployed or disabled at the end of 2009. So far you have only paid off $300 or less of the $2000 purchase. Then the final statement comes letting you know that you have only 30 days left to pay off the entire amount or now face added interest charges from the date of the original purchase. You are shocked. You did not read the fine print where it said that if you did not pay off the entire amount before the end of the 0% interest grace period you would owe the entire amount plus 22% (or more) on the purchase price. On the original purchase of $2000 that would roughly equal $440 in interest if they did not compound the interest rate. So now you owe just a little less than $2100 and each month you can add more interest to that.

What looks on the surface to be a good deal might not be if you don't pay off the entire amount by the end of the grace period. Don't fall for those deferred interest and payments deals. If you can't afford it, don't buy it.