Buying furniture, etc. with O% interest,

iVillage Member
Registered: 12-12-2004
Buying furniture, etc. with O% interest,
11
Mon, 08-29-2005 - 11:09pm
Hi, everyone. I have a question that I need help with. I am seeing ads for "buy with 0% interest, no payments until 2006" kind of thing. Usually, it is a furniture store or an ad for washing machines. I am clueless, as we havent bought any furniture for 10+ years. Is there a catch? I mean, do they want you to open an account? Pay 10% down and then no interest? Is this a good deal, or will the furniture wear out by the time it is paid off? Can anyone share their experiences on doing this kind of thing? We need to get a new couch. THanks. Whiz.

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iVillage Member
Registered: 08-19-2003
Tue, 08-30-2005 - 7:19am
Personnally I think the "0% for 12 month" financing options are great if you already have the cash in your savings earning 3-5%. I think they are a bad idea when you are creating another bill they you will be paying on forever.

Shannon


Pregnancy%20ticker
iVillage Member
Registered: 01-25-2005
Tue, 08-30-2005 - 8:03am

We did this and we had the money at the time but they made it sound so good, well instead of saving the money we spent it on something else (we were much younger at the time!) and I really didn't understand that if i didn't pay it off within the time i would pay back interest, which of course i didn't pay it off in time, so we spent years paying for sofas that i never really liked that much. If you are REALLY disciplined and you save the money and pay it off when you are supposed to it is great b/c then you can make a little bit of interest , but if not they will hit you with huge interest, probably at least 20% b/c they are in it to make money afterall. (i think they usually have a seperate co. that they let have their credit card acts anyway) Personally, if you are able, i would rather save the money if i don't have it or pay cash if i do.

Good luck,

shannon

iVillage Member
Registered: 03-27-2003
Tue, 08-30-2005 - 8:56am

Well, the catch is that this is a huge money-maker for the furniture stores, and usually a money trap (with one exception, as others have already pointed out) for the consumer. It sounds like a great deal up front, but there are two big problems with it. First, there's the issue of back interest. Not all accounts work this way, but many of them have a clause that says if you fail to pay the ENTIRE balance by the end of the 12 months--or whatever--then they will not only begin charging you interest on the remaining balance, but they will charge you all the interest that would have accrued during the previous 12 months if they had been charging interest, and lump it all on there with the rest of the balance. This ends up meaning, usually, that you'll have paid for your furniture about five times over before you're done.

The other big problem is the same as that of most types of debt. By the time you're done paying for the item, it's not new any more. What fun is that? Besides, most of the stores will see that you've finished paying, and offer you another "irresistible" offer so that you come in and buy more furniture. It feels relatively painless since you were making a payment anyway, so you spend more than you would have otherwise, and they get the money.

But if you want to spend less money (so you have more money for other things), the way to do it is simply to save the money up. Instead of making payments to a creditor, make payments to yourself (where the money will earn interest, like in an ING account), and wait until you have the cash. Then you can shop around for the best deal on the best couch.

And here's where the one exception comes in. If the couch you want has a 0% for six months offer on it, great. Take the offer if you like, and leave your money in the savings account for six months continuing to earn interest. Do this ONLY if you're CERTAIN you won't spend the money in the mean time. But even at that, there's a catch. You *do* have to apply for their credit card, and it goes on your credit report. Probably not a big deal, except that every open card beyond a certain number shows negatively on your report. My dad, who has always had absolutely sterling credit and carries no balance and pays no interest, still doesn't have the highest possible credit score. When he inquired as to why, he was told it was because there were too many accounts--open and closed--on his credit. Accounts from thirty years ago that were closed 25 years ago still show on the account as having been open 25 years ago. They never drop off.

Anyway, personally, I take a great deal of pride in paying cash for everything (except real estate), even when there is a financing option. We didn't always do this, and I know too well the pain of paying back interest, as well as the pain of paying for things well after their useful life is over. Never again. We pay cash, always. If we don't have cash, we do without.

I hope that explanation helps you. Whatever you decide to do, good luck.

Blessings,

Heather

iVillage Member
Registered: 06-18-2004
Tue, 08-30-2005 - 9:48am

You have to read the *fine* and I do mean *fine* print carefully. With these type of offers I have discovered two kinds. One is the 0% for a certain length of time (say 12 months). With these you have to make a minimum payment every month and if you don't pay it off within the timeframe you get hit with all of the interest that has accrued on the full purchase price. (And the minimum payment is no where near close to paying it off in the timeframe).

The other kind is no payment for x # of months. This also accrues interest on the full price from the beginning of the loan. This one is really a trap because the companies usually don't send a monthly statement to give you the option of making payments. You forget about it and then when the no payment period is up, you suddenly have a huge bill.

HTH,
Kellie

iVillage Member
Registered: 09-20-2004
Tue, 08-30-2005 - 10:19am
Oh, I have done this lots of times...with large electronics purchases and furniture. With the electronics, my dh worked at the store so we knew the margin, etc and were relatively sure that we were getting a good deal. Well, what was a good deal in October was a terrible deal in February..depreciation, depreciation. With furniture, we have found this to be a bad deal pretty much across the board. I am moch happier going to an outlet and buying things deeply discounted than paying on furniture for x amount of times. We do have little kids, things don't seem worth it so much after a year goes by ;) But the biggest problem I have with this arrangement is that it takes away money you could be paying towards higher interest rates, and thus, is not as benign as it sounds!!! Guilty!!! Heather
Avatar for cl_phocid
iVillage Member
Registered: 03-26-2003
Tue, 08-30-2005 - 10:52am

Aside from the "catches" that others have already pointed out, the biggest "catch" is that it continues the "debting attitude" that so many are trying to break free of.

All my best,
Danni

iVillage Member
Registered: 03-27-2003
Tue, 08-30-2005 - 10:57am
Well said, Danni.
iVillage Member
Registered: 03-27-2003
Tue, 08-30-2005 - 12:58pm

I would also look to see if there's another option. When we bought our refrigerator the signs all over the place touted the 0% interest for 6 months. When you looked more closely they had a certain percent off if you paid it off in the first month. We had a Sears card already so we charged it, paid if off immediately and then received the check for the percent off.

Taleyna

iVillage Member
Registered: 12-12-2004
Tue, 08-30-2005 - 4:05pm
Hi, Heather, and Shannon. Thanks for the interest rate 101 lesson. Hmmm--didnt know that the stores would tack on some big interest if not paid in 12 months. It seems like a scam to me. I mean, by the time you pay it off, it is either shredded by the cats, or whatever. Am I that disciplined to save? Only with the 403B and IRA, yes. Guess will sit on the sagging, shredded couch. WHiz.
iVillage Member
Registered: 12-12-2004
Tue, 08-30-2005 - 4:07pm
Hi, Kelly. Thanks for info. The ads are something like "0% interest until 2009". I personally dont see how we would be saving that much interest, and, like you said, the bill is "suddenly" there. Too much risk, in my opinion. I really appreciated you spelling it out for me. Whiz.

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