No interest credit offers and layaway plans can be an attractive temptation, but is no interest REALLY no interest? Read this FIRST before adding that debt!
No Interest Credit – Is No Interest REALLY No Interest?
I read this cute saying in Reminisce Magazine the other day. It said:
“Too many people buy things on the lay awake plan.”
I chuckled at it but I realized that those words are so often very true. It was reinforced to me this past weekend when I was bombarded with ads on TV saying “No interest until the year…”
Top that with a woman asking me if she should buy some new things for her home which were on sale and that she didn’t want to pass up. The cost was going to be $6,000. Her husband had only been working a few months after having been laid off and they had no savings, so they were going to charge the things.
Here are a couple of questions I asked her to help her make her decision:
Would the interest she would be paying on it cancel the savings she was getting?
She said no because the great part was that the company was giving 0% interest for 1 year and they didn’t have to worry about interest. Then I asked the next question which people in this situation don’t often think to ask themselves.
Can we afford the extra $400-$500 monthly payment each month for the next year on top of our regular bills?
This is what she would have had to pay each month for a year in order to get it paid before having to start paying interest. In our minds we often think, “I don’t have the money now but I will have a whole year to figure out how to pay for it.” We falsely think that in a year we will have had some magic fairy bring us all the money we need and will be able to pay it off. We put it on the back burner, get busy and forget about it then BAM! Your year is up and you still don’t have the money. If you are struggling now to make ends meet, chances are you will be in the same boat in a year. For some reason not having to pay interest for a year often gets confused with not having to pay on that bill at all.
So again, can you afford another $400 -$500 if you are already struggling?
Did you read the fine print and do you know all the facts?
People don’t always read the fine print and the salesman often doesn’t mention it to you either. Most of the time, if you don’t get it paid off by the end of your interest free period, you get billed for all of the interest you would have paid back to the first day you bought it, meaning there was really no interest free period at all. Yes, they say you don’t have to pay interest for a year but that just means they are giving you a chance to pay it off in a year.
Do you know how much interest can be added to $6000 in one year of not paying on it? Depending on the percent but it can be hundreds and even a couple thousand of dollars. Many companies charge 29% interest which works out to nearly $2000 PER YEAR extra on that $6000 item. This is why people often can’t seem to dig themselves out of debt. So much for the good deal.
Don’t be gullible and easily swayed. Most of these too good to be true good deals are not good deals.
What to do:
- Save up for what you need.
- Shop around. If it is something you can’t wait to buy and really need now (like a refrigerator) then do your homework and shop around.
- Sleep on it. If you have done all of the above then sleep on it for at least one night. If the sale is only on for today and you will miss it well so be it. It was not meant for you. Trust me- Another sale always comes along.
In closing, remember this: We don’t know what the future holds. You could lose your income next week, a spouse could die or leave, the economy could bottom out or you could be seriously disabled in a car wreck today. As negative and depressing as that all sounds I just want to remind you to face reality – things happen. The creditors don’t care what happens in your life and you will still have to pay even if something unexpected happens.
Each debt you bring upon yourself is like another heavy burden you are adding to your back to carry. Imagine walking down the road and you and your spouse are carrying this heavy overwhelming burden. You seem to be doing fine trotting along carrying your burden but then suddenly your spouse is out of the picture and you are carrying the burden alone. It is heavier but you are still doing ok. Then you trip and break your leg and arm. The weight of those burdens doubles and becomes almost impossible to carry.
Be careful. Life happens. Make sure that you are not adding more burdens to your back than you will be able carry.
-Jill
For more easy and practical ways to save money and get out of debt, check out Dig out Of Debt and learn more about how to keep more of your money.
Such good advice! I worked with a young fellow who missed the payback period for his interest free period, and got stuck not just with interest, but had his wages garnisheed, as well! It was a small company, too, and between all the chit chat, everyone found out. No company gives money away — they always try to have an angle. Cash is like always giving yourself a discount.
My daughter got hooked on one of those “no interest or payment for one year”. She didn’t pay and after the year, the company added about $2000 to her balance. She’s having a hard time paying it off, but she learned a valuable lesson.
I had cataract surgery last year. I needed the surgery but didn’t have the entire copay saved, so used the “no interest for one year” plan. I paid if off within six months.
Over the years, we’ve used these plans for emergencies like when the refrigerator died and couldn’t be revived at the same time the car died, but we always paid it off within the time frame.
I have no problem with these plans if they are used for “emergencies” and not just “wants”.
That “no interest for one year” has tripped up a lot of people because of just what you said. You still have to pay the interest. The stores are NEVER going to give you anything really FREE! If you don’t intend to pay it off within the year, you are much better off saving your money. My son recently purchased some furniture (he saved and paid cash) from a store that had great prices. I loved the quality of the furniture and I need a new couch and chair in the worst way but will not buy it on credit. I have been saving but heard yesterday that the store is going out of business by the end of August. Guess I’ll just have to set my sights on another sofa and keep saving. They say there are great bargains at 70% off but I don’t want to put it on my credit card so will just wait. Too bad. I really liked their things. The economy is really killing the furniture stores in our area.
If I can do it I would much rather use a layaway plan. If you find out you can’t pay on a layaway you can cancel the layaway. Yes you would end up paying some charges but a lot better than having your credit messed up because you can’t pay it. Plus it’s a pretty good bet if you can’t pay layaway payments you definitely can’t pay credit plan payments. “No interest” is a misnomer. It accrues and you get socked with it at the end. My husband and I found that out early in our marriage. We did manage to swing it okay but we vowed never again.
Dental care, medical care, medications, basic food, housing—–these are some “must-haves” and there’s no substitute for these that I have found. A new sofa, upgraded appliances, new decor items for the home—–these are not “must-have” items. Get real and and shop used. Example: I have often seen very nice sofas for $50 at garage sales. Good furniture is often very cheap at yard sales compared to new. When people move they generally can’t take all of their furnishings with them—-you win!!!! Clothing is often incredibly reasonable as well as kitchen wares. Learn to play the game —Buy used and get whatever you want for a song. There are so many ways/places to buy at your price? As for the old scam about no money down and no interest until whenever—–forget it. Save up a little cash and hit the used sales places–you will quickly learn which have the best quality and prices? Learn to play the game—-take pride in being being smart and getting whatever you want without the scams and interest fees.
We just signed on for 18 months free financing or our roof. We had no choice as our house insurance was going to drop roof coverage if we didn’t. It sucks. We are paying off our current home equity Loan as much as we can, then use that to pay up roof, as home equity is 3.9 vs 16%. What do you do when you don’t have $17,000. 00 laying around?
I’m sorry Sharon I didn’t quite understand what you were asking or what the $17,000 was for.
I think she meant that she doesn’t have 17000 for fixing the roof so they got an equity loan at the lower rate than they would pay somewhere else.
I have tried to explain this concept to so many people. Sales people are shocked when I say no thank you and pay cash. I have accepted 0% a few times–when we needed a new car after keeping the old one for 12 years I waited until 0% came around. But here’s another thought. We have worked very hard to have an impeccable credit score. Once my husband was interested in the 0% offer at the store so we applied. We were turned down–I told him that stores open to make money- not give money away. They wouldn’t give us the credit because they knew we would have it paid off without paying interest. These promotions are designed for people revolving the balance.
Jill you are so right about buy now and pay later.I don’t know how many commercials you see in a day that says pay no interest for a year.what is so sad is people fall for this stuff! My husband and I only purchase what we can pay cash for and that’s it.We have a saving account and an emergency account. We are old school and was taught to save for a rainy day.
Hi Tawra and Jill, great post, because it makes you think. Want to tell you about the book I am reading. It is the biography of George Muller, a pastor in England in the 19th century. My brother-in-law, who is also a pastor, just read it and recommended it. Muller felt that from studying scripture that a person must never go into debt, and must prayerfully ask for what they need. He refused a salary from the church where he was pastor because the church charged pew rents, he only asked the members to give an offering as they left the church. This was the only income he and his family had, and had to rely on God completely, because the amount was different each week. He later established several orphanages, using the same principal. He never asked for donations, but prayed with the staff that needs would be met, and they always were, many at the very last minute. He had great faith, and my prayer is to have faith and discipline that great. He has blessed us with so much, and I am thankful, but I know that I would have a closer walk with him living life in this manner.
“No interest” offer could be a good deal if you make a plan to pay it off before the end of the promotional period. It still make sense to get the offer even if you have money to pay it with cash, as you can put money into a CD account or just plain savings account and earn some interest on it yourself and then pay off the loan with it.
Back in 2008 I opened the 0% interest for 6 months credit card and it also gave me $50 gift card for opening it. We were in the process of remodeling out house and had the money for it. I opened a CD account in the bank for 5 month, 3.75% interest rate (the rates were good back then). They gave me a 6,000 limit and I had to pay at least a minimum payment every bill. So I ended up gaining over $150 by doing that. Just for opening a credit card and using it and opening a CD account. Too bad they don’t have rates and deals like that now.
So, the “no interest” offer can be a good deal if you use it wisely and disciplined enough to pay back on time.
I think that the reason that sometimes “no interest” offer feel like you don’t have to pay at all is because they often have “no interest, no pay” for a whole year. It means that you don’t even have to pay a minimum payment every month and often they even don’t send a bill ( they would try to sign you up for a e-bill or something). And then after a few months a person will kind of get used to not paying for it and maybe forget about it. That’s what they hope for. And then, oops, the year is up and they want their money back WITH the interest. It is a good idea to read all the fine print before you fall for anything like that.
Once (in 2005 I think) we almost refinanced our home mortgage for so-called “fixed” lower rate. We were ready to sign the final papers, when I read the whole thing, every little tiny word, and it turned out that the payments were fixed, but the rate could fluctuate and then if we weren’t paying enough to cover the fluctuating interest, we would have a “balloon payment”. So the payments would be lower, but we would maybe not even pay anything towards the principal, but also would have those unpredictable extra payments. I know people who fell for it and ended up loosing their houses. When they first signed up for it they were happy and recommended it to us, but after reading it all, we refused to sign up for it at the last moment. I also called my friends who already signed up for it and told them all about it, but it was too late for them as there were also rules in it that they couldn’t pay anything extra towards the principal or refinance it for a certain time period.
Read all the fine print before you sign up for anything that might seem like a good deal.
I agree with your method “get it for free”. Money in the bank earning at least some interest is better than paying in full when you can spread it out at no interest. That’s why I don’t understand people who buy food like crazy and have these huge stockpiles. $500 in canned goods is not making your money work for you.
The only problem me and my Husband had was we are Missionaries so we traveled a lot. and always relied on the LORD for anything we needed, and always paid cash.. well I thought it was time to settle down. and have a place called home..we were looking to buy us a small house.. But because we paid everything in cash we had NO CREDIT.. so I was upset, to get a Good credit score you have to be in dedit .. even though you were debt free.. the Bank said to get a credit and manage it for one year. and than come to us. I didn’t want to do this me and my Husband have little finance.. but we take care of all of our debts.. So now we are in a pickle.. what would you do. ?? we can’t afford a down payment. we only can afford a monthly payment.. Anyway any Ideas.. I know someone suggusted Finger hut, but thats not really a credit card..
WARMEST BLESSINGS TO ALL
Yes Shelly that is frustrating. My grandson is having the same problem. The thing is I don’t believe in being in debit but that doesn’t mean I don’t believe in never ever using credit cards either. Many financial people push that but the problem is now you really need to have a credit card sometimes and a good credit report. That doesn’t always mean you are in debit if you have one. If you can control your money and use cash most of the time having a credit card is not all bad and you should be able to control it too. Sometimes you need one to even get a motel room even if you pay cash or to rent a car and things like this. I still use cash all the time but on rare occasions I may have to use one. The secret is I always have the cash to back up what I charge, and pay it all at the end of the month when so there is no interest.
I am afraid there isn’t much you can do at this point but to try to build up a credit report. One way to do that is to get a credit card from a credit union, bank or someplace. For a bit charge some things on it, at the end of each month pay it all off but $1 and this will start building your report up. Another thing to do too is if you can put around 25% of a down payment on a house then they are often more willing to give you a loan easier. I am afraid the bank is right in what they told you.
Try not to get too frustrated. God has helped you in the past and He will with this too. Maybe He knows for some reason it is best for you not to buy right now. Do your part by working on getting a good credit report and God will help you with the timing and the rest.
Also normally we say pay cash for a car but if you need one buy an inexpensive car, pay a good chunk on it then get a loan for the rest. Often you can get a loan that doesn’t charge interest for 6 mons. and if you pay the whole thing off in 3 mons. then you won’t have to pay any interest but it will show up on a credit report for you in a positive way.