Updated: Aug 5
Have you ever been out and about and saw a large purchase item that you just must have. Guess what. The advertising sign says, you can take it home today with no money down and 0% interest on your purchase for a given time frame. Sounds amazing, doesn't it? Well, it's not! And here's why
There is no such thing when it comes to purchasing something with a 0% interest term in a retail situation. This is purely a sales tactic that is widely used for enticement. When you purchase under a stores 0% interest plan, the store makes more money on the sale, than if you paid cash or even with a credit card. Here is why:
When you go to make the purchase several things will happen. They will get you to apply for the store's credit card, okay, no problem you say, well check out the interest rate to start with, you will also have a credit inquiry on your credit report, possibly lowering your credit score. Myself, I have never owned a department store credit card, and never will. Another thing that will happen is they will tack on a deferred payment cost, or an administration fee, or in some cases both. Call it what you want, anything above the listed price, I call interest. In some cases, these extra fees can be more than what you would pay in interest if you purchased the item on a regular credit card.
Hers some homework for you. One of the most common items advertised at 0% is vehicles. Take the payments they quote you, and multiple the payment amount by the number of payments, add in the administration fees, did you notice that for some reason, it never equals the cash price. But they advertised 0% interest. Look at the fine print, and the bill of sale, you should see the listed price and taxes. Bet you see a little bit more than that now don't you. These added charges are another form of what I will call interest. They will make their finance money in some form no matter what, mostly by giving it a different name other than interest. In some situations these fees can be more than 40% of the original purchase price. You would be a lot better off placing the item on layaway. Also, ask yourself, why are they advertising only the finance payment?
So you walk out of the store with your new purchase.All you have to do is make equal payments, pay the item off in a given period of time, and no additional penalties will happen. Great you say, no problem. You had better make those payments in time every single month, because if you don't, or are even late by 1 minute ( it can just take 1 late payment ) then you are paying interest on the interest, which can equal to more than double the purchase price. This is on top of the so called administration fees that were added at the time of purchase to get the so called 0% financing as you are now in violation of the agreement. If you are in one of these agreements, I would concentrate on paying this off ASAP, throw every available penny you have to get this paid off, just my advice.
Another great money maker for retail outlets is the rent to own concept. You fill out an application with all your information, and you then walk out with your item in hand, and all you have to do is pay the rental fee, and over a given period of time, guess what, you own it. They tell you that half of the rental fee, will come off of the purchase price. another feature is you can return the item at any given time, no hassle, no problem! Well there always is some form of penalty. What I would do, is figure out the total of the amount you would pay if you made all of the so called rental payments. Now look at the total. and compare it to the cash price, notice the difference, as in its 2 to 3 times more than the cash price! Though they call it a rental fee, I call it interest!
The quickest way to double your money is to fold it over, and put it back into your pocket