A Young Couples Journey Out Of Debt, And Down A Path To Financial Independence.

Wednesday, November 21, 2007

Do Not Pay until 2009

With Christmas quickly approaching the average consumer is being bombarded with a very tempting offer to buy now and pay no interest until later. This option allows you to have that 42" flat panel today with no worries until 2009. Sounds good, what's the catch.

My good friend found out the hard way what the catch was, and I think a lot of other consumers find themselves in the same situation when the loan comes due.

He and his wife bought a house and needed to furnish it. They did what many other people do, they bought their new furniture with no money down and no payments for a year. My friend is self-employed and could not make the payments on the due date, as a result he was charged the purchase interest (21.5%) on the entire purchase, that hurts. He is still making payments, only now he is paying interest on each one. He had every intention to put money away each month to pay the t.v. off on the due date, but like so many other people he did not.

This offer seems to good to be true, and it is. Retailers are offering free money (no interest) to purchase their products. They must know something that we do not, I think they know that we want "stuff" right away. They know that at the back end they will make money on extremely high interest rates because we will not be able to pay.

If you must buy nowand pay later I have a better strategy, one that does not require you to save. Instead, most offers of buy now pay later will give you the option to make equal monthly installments at 0% interest. Why not use the credit, with no interest. This works best if you already have the money saved in a high interest account. You can withdraw the monthly payments while making interest on the balance of the account. This way after two years of no interest payments the t.v. is yours free and clear.

We used this when we moved into our house and it worked out beautifully. New appliances for the kitchen @ 0% interest, and our savings remained in the bank earning us interest each month.

We all can agree that the best option is to enjoy what we already own, or pay cash for that big ticket purchase. But if we have the choice of no payments for a year or equal monthly installments over two years I think the later is the better option.

1 comment:

Esme said...

Yeah, I think they definitely are counting on being able to charge high interest for some of these interest free loans.

Horror story I heard on the news. This guy bought something from Leon's on the don't pay interest for x months. He paid it off after x months, and kept the receipt for awhile. Now (quite a long time later) a credit collector put a lean on his house because they say he didn't pay. He no longer has the receipt to prove he did. And Leon's say it's nothing to do with them! Scary.