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Commercial America's version of "Ho, Ho, Ho!" is "No, No, No!" NO waiting—buy now—with NO interest and NO payments until...next year...or maybe the year after...or maybe even four years from now.
Many of the largest electronics retailers, as well as furniture stores, car dealers and other merchants who sell pricey items, have teamed up with credit card issuers to provide "buy now, pay later, no interest" loans to cash-poor shoppers.
They're a great lure, but unless you read and follow the fine print carefully, you could be setting yourself up for quite a wallop when that "until..." date arrives.
That's when the merchant's "Ho, Ho, Ho!" will sound suspiciously like "Ha, Ha, Ha...Gotcha!"
Sure as day follows night, the Super Bowl follows Christmas, and this could be the year you watch the action on a fabulous 58-inch plasma high definition TV of your very own! They're on sale, heavily discounted, with painlessly easy financing. No interest and no payments until...well, far enough into the future that many people will say, "So, why worry now?"
Here's why. Most "buy now, pay later" purchases end up costing far more than advertised—because if you're buying something you can't afford today, it'll likely remain something you can't afford when the Piper shows up to be paid.
And said Piper won't just want the advertised price. He'll have a boatload of finance charges and default penalties to tack on. Years before your final payment has been made, that deeply discounted TV will have long been retired, along with the players on both Super Bowl teams.
Super Bowl Fever, Anyone?
You're relaxing in the living room, when you spot the pile of weekly ads from Sears, Best Buy, Circuit City, and Radio Shack.
There, right before your craving eyes, Sears beckons with a Panasonic 58-inch high def plasma TV, which lists for $4,999.99—but is on sale for $3,699.99.
"Turn your living room into your own personal movie theater with the TH-58PZ700U 58 inch 1080p plasma HDTV from Panasonic," the ad says.
Then you read that you can save $1,300 if you buy now, and you won't have to make any payments for a year. Plus, there'll be no interest due. Not bad! How could you possibly resist?
To protect your investment, you can buy a "3 Year In-Home Master Protection Agreement" for an additional $749.99. The sales clerk will certainly tell you how valuable this is. You'll still be saving $500 over the retail price of the television, so it's like getting the service contract for free. New total: $4,449.98.
Since this isn't an old-fashioned, put it on a table television, you also need a wall-mount. The premier swing-out arm mount adds another $299.99, but will let you watch the TV whether you're relaxing in your living room or searching for a snack in the kitchen. New total: $4,749.97.
Then there's the HD Essentials Kit, which you might as well get. It includes the cables you'll need, and it's on sale for $39.99...a $10 saving. New Total: $4,789.
And don't forget about sales tax, which, where we live, is 7.25%. That adds another $347.27, bringing the grand total to: $5,137.23.
Ouch! You can't afford to lay out that much at one time, so you apply for the special, "No interest, no payments for a year financing!"
If your credit isn't in tip-top shape, don't get your hopes up about being approved for the interest-free deals. You may be offered different terms that are more costly than the come-on rate. But let's assume your credit is good and you're quickly approved. You can almost taste those Super Bowl treats as you and your friends gather in front of your new home theater!
Bringing you back to reality, the sales clerk says, "Just sign here. Don't worry about the fine print. It's a great deal, and we don't have many left in stock. You better buy it now." So you sign the contract and make arrangements to bring your new "baby" home.
Before It's Too Late: Know What the Fine Print Says
The contract for this giant TV is typical of "buy now, pay later" financing:
"Deferred interest promotional offer details: Finance charges accrue from the date of purchase and all accrued finance charges for the entire promotional period will be added to your account if the purchase is not paid in full by the end of the promotional period or if you default under your card agreement. Making the minimum monthly payment will not pay off your promotional purchase in time to avoid finance charges. Sears cards: APRs up to 26.49%, but if your account has a variable APR, the APR is up to 32.24% and may vary..."
In other words, if you don't pay careful attention to the fine print or make the final payment on time, you'll surely wish you had, because you'll have to pay big bucks in interest if you fail to do any of the following:
* Make the monthly minimum payment, if one is required. (Generally, no monthly payments are due if the interest-free period is a year or less.)
* Make all payments when due. (Better not be late!)
* Pay off the full amount before the deadline arrives.
How Much Will the TV Really Cost?
To keep the math simple, let's make these four assumptions:
1. You have a year to pay off the television.
2. There are no monthly payments required during that year.
3. If your purchase hasn't been paid off by the end of the year, the interest rate is 25%.
4. The year goes by very quickly, and before you know it, the $5,137 balance is due. But your checkbook is bare.
Uh oh! In this all too typical scenario, time goes backwards. Because you failed to pay off the entire balance by the end of the year, interest is calculated from the day you made the purchase—so you immediately have a new balance of $6,421 to pay off on a credit card that charges a whopping 25%—or maybe more, if a penalty rate is applied for any number of reasons.
If you make only the minimum payments from here on in, you'll end up paying a total of $29,811 for the television. Believe it or not, your last payment will be made exactly 55 years and 7 months from the day you brought that TV home. It will be a museum piece by the time you've paid it off!
Tips for Different Types
If you do go for a buy-now-pay-later plan, above all else, make sure you pay for the item by the due date.
Here's an easy way: If you have a year to pay, for example, divide your final purchase price by 12, and make sure you pay at least that amount each month.
Read all the fine print. If there's something you don't understand, get a clear explanation before you sign up.
Unfortunately, these deals often tempt peop le to throw common sense out the window. They buy heavily advertised items they don't need and can't afford—frequently at prices that are higher than they might have paid elsewhere.
No TV is worth $29,811 and 55 years of payments, right? Don't buy something you can't afford, no matter how good a "deal" it is. If in doubt, pause and ask yourself these questions:
* Do I "need" this item or simply want it?
* Can I afford it?
* Can I trust myself to pay it off during the zero-interest period?
If you answered "No" to any of these questions, leave the store! If you answered "Yes" to them all, invest a little time and energy in comparison shopping to make sure you're getting the best of the bargain, rather than being bested by the bargain!
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