The "no interest until 2011" deal

[Tom7227]

Middle kid is looking to buy a mattress and seems attracted to the sales pitch of no interest for X months. Seems to me that there's two ways this can work for the retailer. First is that you screw up and miss or make a late payment and then they lump on the accumulated interest - at probably a high rate. Second would be to jack up the price up front to cover some of the 'free' time to pay.

Anyone with business experience want to reveal what the real deal is?

Thanks

Tom

[gunflint]

The retailer is probably getting paid from a finance company. It's the finance company that takes on the loan. It can work out to your advantage if you pay it in full before the payments are do as long as there is no penalty for doing so.

[echotrail]

It's ok to purchase things like that. Most likely the interest will be on the unpaid balance going back to the original date of purchase. You come out ahead only if you pay the entire balance off prior to 2011 or whenever the interest becomes active.

We bought windows for the house that way a few years ago, just left the money in the money market for 11 months and then took out what we needed to pay for them.

[shizzy]

I have done that a few times on things. washer, dryer, stero equipment, etc. there are two rules

#1 read the fine print. make sure there will be nothing extra charged anywhere as long as its paid in full by the due date.

#2 Only do this if you had the cash in hand anyway and dont buy more then you originally intended.

[nofishfisherman]

I spend several years working in a well known MN furniture chain and these no interest deals are very common.

The stores are not likely to be jacking up the price before the sale, I know my store did not.

Promotions like this are designed to do 1 thing and thats increase the amount of product they sell. This is just one ploy they use to do it.

If you read the fine print of the deal you are agreeing to it usually states something to the effect that if you do not pay off the entire balance by the agreed upon date they you'll owe interest on the full purchase price of the product not just the balance you have left. The interest rate will also be at least 3 times higher then normal, not uncommon to get up into the 20-30% range.

If you buy something under these terms you better make sure you pay it off on time becuase if you don't it will cost you. If you buy a $1000 mattress and don't pay it off in time you'll be looking at $200-300 in interest payments you'll need to make plus paying off the remainder of the balance. Thats how the finance company gets their money back after. Only takes 1 or 2 people out of 100 to not pay off the loan in time and they'll get their money back quick enough.

Meanwhile the stores only benefit is that they are hoping to sell more beds and regular price during the promotion. The benefit from not having to put a reduced sale price on the product in order to sell it.

In the end it can be a good deal for the buyer as long as you pay it off in time.

[katoguy]

Usually the potential downside doesn't justify making the purchase because of this deal. Too many unforeseen possiblities could come up between now and 2011. I would just shop for the best price upfront and ignore this type of deal.

(The deal would be beneficial for some. i.e. You need the merchandise, it is priced right, and are planning on putting it on credit anyway.)

[nofishfisherman]

Katoguy is right on that. You're better off having cash in hand and finding the lowest price versus taking a no interest deal. The only time I've ever gone for a deal like this was when our fridge broke and I needed a new one ASAP and didn't have the cash in hand to pay for it on the spot. It allowed me to spread that unexpected cost out over 2 months interest free. But it was paid off in 2 months versus the 6 or 12 months I had.

[paceman]

We have done it on a few items (Table/chairs, computer). It worked out just fine. I am pretty secure in my job and I always make a little more cash (OT) in the summer so I pay everything off then.

[shizzy]

Katoguy is right on that. You're better off having cash in hand and finding the lowest price versus taking a no interest deal. The only time I've ever gone for a deal like this was when our fridge broke and I needed a new one ASAP and didn't have the cash in hand to pay for it on the spot. It allowed me to spread that unexpected cost out over 2 months interest free. But it was paid off in 2 months versus the 6 or 12 months I had.

see, my thought was the exact opposit. I was going to buy anyway, had cash in had, but they offered free financing. I figured this allowed me to put my cash back in my savings account and let it earn its interest (1% is better then 0%) for the next 12 months. this way I put all the money back in to savings and paid the monthly out of my checking account. Savings account stayed untouched and I made a few cents in interst to boot.

[nofishfisherman]

Originally Posted By: nofishfisherman

Katoguy is right on that. You're better off having cash in hand and finding the lowest price versus taking a no interest deal. The only time I've ever gone for a deal like this was when our fridge broke and I needed a new one ASAP and didn't have the cash in hand to pay for it on the spot. It allowed me to spread that unexpected cost out over 2 months interest free. But it was paid off in 2 months versus the 6 or 12 months I had.

see, my thought was the exact opposit. I was going to buy anyway, had cash in had, but they offered free financing. I figured this allowed me to put my cash back in my savings account and let it earn its interest (1% is better then 0%) for the next 12 months. this way I put all the money back in to savings and paid the monthly out of my checking account. Savings account stayed untouched and I made a few cents in interst to boot.

You did make an extra few cents that way and likely it was literally only a few cents. The refrigerator I bought this spring was $1200 and I did that with the interest free ploy, not normally something I would have done.

Right now interest rates are pretty bad even on cash certificate accounts so I would have made 1% interest if I left that $1200 in savings for the entire year. Thats $12 I would earn in interest over a full year, but it was a 6 month loan so that cuts it to $6 if i would have kept all $1200 in savings until the last possible day and then paid it off. If I would have made monthly payments on it for those 6 months then I would further cut the earning power of that money after each monthly payment, so in the 6 months I would have perhaps made an extra $3. Its up to you to decide if its worth going through with the loan for the extra few bucks.

The key to these loans is simply diligence in paying them off it time. If you do that then its all good no matter your reasons for doing it.

[Tom7227]

Ladies and Gentlemen,

Please read my post. I want to know what's in it for the business, not whether or not it makes sense for you to do it based on your personal circumstance. Each of us can make that decision on our own. I want to know what the angle is for the business.

Thanks

Tom

[nofishfisherman]

I answered that question several posts ago.

The business is able to use this special financing to sell more product. Selling more product means more profit, pretty simple concept.

The store can sell more product by offering this incentive instead of lowering the regular price that's what they get out of it. Sometimes they lower the price AND offer no interest and then they hope to sell even more product.

[delcecchi]

Same as the car company giving a rebate or low interest loan. Or offering a "sale" price for that matter.

[kg2]

What's in it for the business??? They are hoping to make a sale they otherwise wouldn't have.

[lookin4fish]

what it comes down to is what americans never do nowdays...dont buy till you have the money for it. we all live outside our means, and at some point we all have to change this. i slept on my parents 15 year old bed for 3 years. it was awful. never got a good nights sleep during that hole time. sometimes i would blow up the inflatble mattress because it was more comfortable. would switch to the couch too. i tossed around buying with a pay later program, but in the past ihave gotten burned becasue of unexpected problems like truck breaking down, furnace needs replacing, broken bones and medical bills...the list goes one. so i set up aother bank acount and had direct deposit to it $40 each month. 3 years later i payed cash. sounds rediculous but i am trying to force myself to live ifferently. if i truely dont need it, and just want it. i have to have the money in cash to pay for it. so it may mean waiting 3 years, but self disapline will pay off in the long run.

[luckey]

I have one suggestion. If you use this plan, pay it off at least a month prior to the end of the promotion. That gives you time to verify a "zero" balance prior to the end. This avoids the "lost in the mail", "accounting didn't receive it" and a host of other real or contrived reasons they may use to nail you with a huge bill.

[S.D. Ice Angular]

I think these type of deals are GREAT, I buy everything on someone elses credit every time I can. TV's, computers, furniture, tires, etc.

If you are wise with your money they work great.

If you are not then you probably are not a good canadit to use this offer. (You Decide)

You still have to shop around and find the best deal though.

[tcwin]

The only other thing to remember is the effect the financing can have on your credit score. A number of these offers are through finance companies and not banks or regular credit card companies. I have been told that to many entries from finance companies will lower your credit score. The assumption is the finance companies are a lender of last resort for sub-prime people.