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90 Days Same as Cash is a Bad Deal for Consumers

By Edited Nov 13, 2013 0 4

You have probably all seen the ads by Best Buy or a local furniture company. "Come in now, no interest on any purchase with our 90 days same as cash". Sometimes it is 30 or 60 days. The time span is irrelevant though since no amount of time can make this a good deal for consumers. That's right! With a few exceptions, 90 days same as cash is generally a bad deal for consumers and yet this practice is common. What are some of the reasons that cause a 90 days same as cash offer to be a bad deal? The key is like most any offer from a retailer, the real interest lies with the company and you are lied to about interest!

90 days same as cash
How it works

You see a glorious ad for a hot new TV or furniture set with the alluring tagline of 90 days same as cash. This sounds good in theory. If you purchase the item and complete payment on it within 90 days then you are not responsible for any interest. This offer is equivalent to a 90 days interest free loan. Now, few things in life are free and there really is no free lunch, so what can go wrong? Plenty!

Why it hurts the consumer

Retailers love this setup as it is win-win for them. The lure on no interest for 90 days will tempt certain customers to overspend with the notion that they will raise the money to pay off the purchase within the next three months and walk away interest free. This does happen, but only occasionally. The retailer realizes that this is a possibility so generally the item in question is marked up to compensate for this. So even if you are responsible enough to pay off the expensive item in 90 days, you probably paid more than you should have from the beginning.

Generally speaking, any item that even requires 90-day financing is probably a higher priced item. Most consumers do not pay off the entire balance before the 90 days is over and here is where the retailer really wins. Some studies have indicated the percent of people who do not pay within the 90 days window is as high as 70%. Also, buried in the fine print is the interest period. If you fail to pay by 90 days the interest is accrued from the time of purchase. The interest on these financing deals can be as high as 24% apr. This is highway robbery. So, you will owe three months worth of interest instantly if you fail to pay off the balance in 90 days. Then interest at an inflated rate continues until you pay off the balance. The "bargain" you purchased 90 days ago can now seem like a headache.

Consumer protection

Consumers need to educate themselves thoroughly on the contract they are about to sign. Make sure the terms involving interest rates are fully understood. If you near the end of the pay period and still do not have the balance, almost anything is better than not paying and being responsible for three months of back interest and possible penalties. Try to borrow the money or use a credit card. This will give you at least a twenty-day grace period with the card and you avoid the back interest. The best solution is not to take advantage of this "special" offer to begin with!

Be informed. You work hard for your money and need to keep it!


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Comments

Mar 14, 2010 1:18am
eileen
So very true, like you say whatever looks free more often than not is not. Everyone needs to read that small print. But you would think that people are awake up to that by now.

How about the shops advertising free for 12 months - 2 years no interest. that works the same way. Iremember buying a vaccum cleaner years ago and it was financed at 30%. I used to pay my whole wage on it every week to make sure we got it paid quickly it still cost extra though.
Mar 14, 2010 1:19am
eileen
I forgot, we were charged because we paid it off earlier than signed up for.
Mar 14, 2010 11:20am
sound_foundation
Yeah, those pre-payment penalties that some places charge are a bear!
Apr 23, 2010 10:55am
cgomez
By the end of the article it sounds like the author starts to get it right, but savvy consumers can do very well with these kinds of financing offers.

First of all, I never end up paying more for this kind of financing. I investigate financing AFTER I have found the lowest available price.

In the case of the Best Buy example, it's not that hard to divide the length of your term by the purchase and pay it off in time. On their payments website you can set up all the payments in advance and never think about it again.

To give a specific example, I had researched HDTV for some time, picked out what I wanted, found Best Buy had the lowest price (getting rid of the end of year model... which is perfect because you pay less before the newer models come in). Then it went on sale, then I had a coupon from previous business. All in all, I could not have bought the TV anywhere in retail or internet without paying $500 more. Then I get to pay it off in increments over 24 months. Geesh it's a no brainer.

There is no question that if you don't understand the financing and allow the "no interest" period to lapse, you are going to pay through the nose. So, don't do that. It's not hard AT ALL and even a half-witted consumer can get this right.

Maybe this explains the overall credit crisis. People don't understand or care what home mortgage they are buying, what car loan they are buying, or how to use a no-interest plan, so they default and eventually we were fooled into bailing out the creditors. Maybe that's why articles like this are needed.
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