Have you ever wondered how retailers can possibly afford to offer the no-interest, no-payment, no-money down kind of deals you see advertised? That was the subject of a question I received recently.
Dear Mary: There are several appliances, electronics and furniture stores in our area that run television commercials offering nothing down, no interest, no payments until 2022. It sounds like I can just walk in and take what I want and not pay for three years!
How do these companies really make money?
Dear Kate: First, these offers are on approved credit and come with a lot of other fine print. You need pristine credit to qualify for those attractive terms.
n Good luck qualifying. One retailer told me only about 25% of the people who apply for these amazing offers, designed only to get buyers through the door, can actually qualify.
The other 75% are offered some other deal with horrible terms. People often accept these terms because, by the time they fill out the paperwork, they’re so emotionally involved and they have their hearts set on that absolutely awesome “free” deal that they’re anxious to sign anything.
n Terms and conditions. Let’s say you’re one of the 25% and you qualify. You have $3,000 sitting in the bank. Now, you could pay cash for that 65-inch Class 4K Ultra HD OLED TV. Instead, you decide to go for the nothing-down deal so you can earn interest on your money until 2022.
Furthermore, you still have to fill out and sign a credit application. And that requires a credit check. Finally, you have to agree to very steep interest (plan on 24.99% or more), which is deferred (not waived) until 2022.
n Fine print. The contract will read that if you are late paying that entire balance in full by the appointed time on the appointed day, you lose your deferment, and you owe interest back to the day you signed the contract. From that moment on, you must begin making enormous payments.
Whenever you sign a contract or application of any kind, remember this: What the large print giveth the fine print taketh away.
n Ugly truth. Most noteworthy, about 78% of the people who qualify for these deals do not pay the account in full at the appointed time, for whatever reason.
Life happens. You use the money in the bank for some more urgent situation. That means you’re stuck with enormous payments plus all the deferred interest on that TV (or other item) that, by then, is no longer new and is worth much less than it was the day you thought you got such a steal.
n Better idea. My advice? Don’t even think about these kinds of come-ons. If you can afford it, pay for it. In full. Now you own it. And if you can’t afford to do that? Then make payments to yourself until you save the full amount.
Discipline and delayed gratification are still excellent character builders.
Hope that helps!
Dear Mary: I have a Dodge Durango gas guzzler, and I owe way too much money on it. If I were to sell the vehicle outright, I could probably squeak by with just $5,000 in the hole. If I trade it in, I would be about $9,000 in the hole. What should I do to pay the difference?
I could put the shortfall on a credit card, but I know that is a bad idea for so many reasons. We have an old pickup truck and an older Subaru that will be OK for now, but how do I get out of the loan and the Durango?
And how can I sell it to someone when I don’t have a clear title? Any help will be appreciated.
Dear Linda: There’s no perfect solution here, but here’s a plan that might work:
Before you do anything, go to your bank or credit union and see if it will preapprove you for a fixed-rate short-term loan to cover the shortfall. Explain your situation. Then you can feel comfortable advertising the car for sale.
Once you locate a willing and able buyer, call the bank and have it prepare the papers for the exact amount that you need to pay off the vehicle.
Ask the buyer to bring his funds and accompany you to the lender’s office to pay off the vehicle and transfer the title to him.
You will walk away with a new loan that’s shorter in term and has a smaller payment than the auto loan you have now.
Dear Mary: My car is dying after 10 years. I’m now stuck in trying to come up with financing for another car.
Any extra money I have after bills and rent goes toward savings and credit card debt. To afford payments on a car, I will probably have to reduce the amount I have going to my retirement account and cut back on the extra payments on my credit card.
Would it be better for me to lease a car or buy a late-model used car?
Dear Paula: I’m not convinced that your old car is terminal. Repairs — even expensive repairs — are cheaper than new big car payments every month.
Find a good mechanic who will do what needs to be done to keep your car running for a few more years. Use the tactics you mention to pay cash for the repairs.
Start saving now so you can pay cash for a replacement car in a couple of years. And good luck!