I could make this the shortest post ever at Stacy Makes Cents because you know I’m not going to condone or encourage debt, even if it is “90 days same as cash” or some other no interest loan. However, let me explain WHY I don’t believe in these “free money” programs and why they simply don’t make sense. Let’s go through five reasons:
- As many as 80% of people don’t pay it off in 90 days – While I couldn’t find an exact number on this (I found numbers from 60%-85%), the stats were all EXTREMELY high on those who buy something on a 90 days same as cash (or similar) and don’t pay it off within those 90 days. When I did collections, the number often quoted was 68% of those who did a 12-month same as cash promotion didn’t pay it off in that promotional time. What did this do to save you any money!? You might as well not have gotten any promotion at all – you simply borrowed money to make that purchase, which is exactly what the company designed the “promotion” to do.
- Interest accrues – Guess what happens if you don’t pay that interest-free promotion before it expires? In most cases, you have to pay all the interest that built up (accrued) during that promotional period. Let’s look at a quick example. If you buy a $5,000 new bedroom suite on a 1-year no, interest promotion and don’t pay it off by the end of that year, expect to receive a bill with a $1,500 interest charge on there. Yes, 30% interest is pretty normal for a furniture store and 30% of $5,000 is $1,500. OUCH! In other words, you’ve paid at least $6,500 for that bedroom suite just by not paying it off before the year’s up.
- Debt = Risk – Before working in collections I wouldn’t have included this reason in my list of concerns to buying on a same-as-cash promotion. But one of the most common reasons I heard as to why someone couldn’t pay their bill a few months after making the purchase was because of some unexpected event that came up. When you take on ANY debt, you’re taking on a level of risk. Don’t overlook that…it is simple but catches a lot of people.
- You’re Counting Chickens – You’ve heard the phrase “don’t count your chickens before they hatch,” right? When you buy something on one of these promotions, you’re doing just that. You’re buying something ASSUMING you’ll have the cash in hand to pay for it when the bill comes. If you have cash in hand to buy it but decide to put it on the promotion, you’re ASSUMING the money will still be there when the bill comes.
- Companies Offer Better Alternatives – If companies are offering 90 days same as cash, they’re usually offering some alternative to that program that is even better if you’re truly a cash buyer. For example, car ads and furniture stores push this type of thing all the time: “0% APR or no sales tax this weekend only!” What does this mean? With no negotiation at all, if you can pay cash, you’ll get a 9.5% discount in Tennessee (where I’m from). Isn’t that the same as paying 9.5% interest if I go with the 0% APR option?
Okay, I’ll stop there because I want your input. Any horror stories on these programs you want to share? Want to argue the point and have a good example or two of when these promotions have allowed you to “cheat” the system? I’d love to hear from you!