COLLEGE STATION — At this time of year, many retailers want to reduce inventory that could run up their property tax base, so they’ll entice consumers, many of whom are financially drained after the holidays, through “pay nothing until” offers.
Maybe the offer is to pay nothing for 60-90 days for an item that also has an irresistible sale price. And someone might think they will have holiday debts paid down by the date, or they’ll be receiving a tax refund.
Dr. Lynn White, an economist with the Texas Agricultural Extension Service, recognizes that sometimes it’s really tempting to buy now and pay later. Before making that purchase though, she advises, consumers should check two things first.
One, what does the fine print say about interest charged during the payment delay period? According to White, it is common for interest to be charged on the entire amount from the date of purchase, even though a payment is not required. Some offers do give consumers 60 to 90 days to pay without interest charges. However, if the full amount is not paid then, interest is charged from the date of purchase.
“Pretend you bought a computer that cost $2,000 with an annual interest rate of 16 percent,” suggests White. “If the agreement does not provide an interest-free waiting period, in addition to the first minimum payment you will have interest charges that add up to $63.95 on the first 90 days.”
How could this happen? The interest each month from the date of purchase is added to the balance due. The example assumes that the interest is compounded monthly. If it is compounded based on the average daily balance, the interest due for the first payment would be higher.
If the contract does provide interest-free credit for the delayed payment period and you are unable to make the full payment at that time, you will be charged interest from the day of purchase on your next statement.
Next, ask yourself if you will be able to set aside in savings the amount necessary from each pay check during the delayed payment period to have the full payment ready.
The best way to avoid the risk of having interest to pay is to consider what would be the worst thing that would happen if you put aside the amount necessary to buy the item with cash when you are sure you have the money. Question your buying motive. Are you buying it now because the offer looks too good to refuse, or because your family needs it now? Are you willing to take the risk of not being able to pay the full amount when due?
“The challenge with ‘no payment until’ offers is that it’s easy to think we will have more money later than we do now. Consumers have to know what will change their situation in the next 60 to 90 days to make that happen. Check the risks and potential cost as well as the benefits before taking the bait.”
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