90 Days Same as Cash... Not Quite!

You’ve seen the ads, "No Money Down", "90 days same as cash", "No payments for 6 months", and so on. I used to laugh when I saw those signs after I read the fine print. I figured it must have been some sort of joke. I mean, who would agree to those terms? Then I realized that this was a thriving business. Some companies actually make a living off of buying up these 90 day-6 month same as cash contracts. How do they make their money? It's in the fine print. Unfortunately, a large percentage of people do not pay off their balance during the "same as cash" period.

If you read the fine print, you will find that during the ‘same as cash’ period interest accrues. This means that your account is still charged interest (temporarily). Since you are making no payments, month after month you pay interest on your interest!

This is the power of compounding working against you. If the promotion was on a credit card, some stores actually require the total payment (plus interest) and then they will refund the interest to you if your balance is paid in full by the end of the promotion. ‘Okay, so that’s a minor inconvenience, but it really doesn’t sound too bad, so what’s your complaint?’ If your balance is not paid in full, you will pay the interest that has accrued and compounded from the original date of purchase. And if that is not enough of a penalty for you, the interest rates on these promotions are usually more than 20%!

Keep in mind that stores usually offer these promotions to get you to buy now instead of later, to spend more than you normally would, or to buy something you normally wouldn’t otherwise purchase. That’s right, why purchase the $300 dishwasher and pay today, when you could have the $400 dishwasher and not pay for 90 days? Some deal, considering you spent an extra $100, and that’s if you pay the balance in full at the end of the 90 days.

Many times the extra $100 you paid does not even buy a better item, just one with more features that you will either not use or that will break, resulting in even more money spent. Don’t worry though, the salesman is trained to handle that argument. "Worried about the self-cleaning feature malfunctioning? We have an extended warranty that will give you peace of mind for only $69 more…" But that’s another article entirely…

You can reprint this article for free. Simply include the following byline at the end of the article:

Bill Pratt is the author of "Extra Credit: The 7 Things Every College Student Needs to Know About Credit, Debt & Ca$h" and "Money Made Simple". You can find tons of useful articles and calculators and have your questions about money answered at www.ExtraCreditBook.com