Warning About "Same As Cash" Offers

We've all seen those tempting offers: 90 days, 6 months, or 12 months same as cash. What a great way to get something on credit without having to pay interest, right? Not necessarily!

Here's how most of these deals work. If you borrow $1,000 on a 12 month same as cash plan, you have to pay it back within 12 months to avoid interest. That much is obvious. However, the term "same as cash" is very misleading because most of these so called deals are actually deferred interest payment plans. So, if you borrow $1,000 and pay $950 of it in 12 months and still owe $50, you will be charged interest on $1,000, not on $50! In other words, you will be charged back interest on the full amount regardless of the amount you paid on the loan during the 12 month "same as cash" period.

What's even worse is that consumers rarely think about the interest they will have to pay if they can't pay the full amount within the allotted time. We're not talking about 12.5% or even 20% interest. The annual percentage rates on these "same as cash" deals can be as high as 40% or 50%.

The minimum payments on the billing statements are too low for borrowers to pay off the loan in time to avoid interest, and this tempts people with tight budgets to fall behind schedule. This is what the creditor wants because the borrower gets buried in an unexpected, massive heap of debt.

Nancy G. is a single mother of three with a very tight budget. She was having transmission problems with her car and didn't have enough cash to pay for the repair. She called around for estimates and asked the repair shops if they had any kind of payment plans. One of the repair shops offered a special 12 months same as cash plan, so Nancy had her car repaired there. She struggled to pay back almost all of the money within a year, so imagine her despair when she found out she had to pay 40% back interest on the full amount. A notice on her billing statement reads as follows:

"IF YOUR PROMOTIONAL PURCHASE WAS PREVIOUSLY IDENTIFIED AS SAME AS CASH, PLEASE NOTE THAT ALL STATEMENTS NOW REFLECT WITH PAY DEFERRED INTEREST AS THE DESCRIPTION....."

The particularly heinous thing about this is that the repair shop chain is still promoting this deferred interest plan as "same as cash." Borrowers won't know that the loan isn't really a true same as cash deal until after signing up-- unless they whip out a magnifying glass and read ALL of the fine print on the contract.

The consumer bankruptcy and default rates in the US are continuing to grow. Is it because consumers are spending beyond their means or could it be due to the pervasive corporate deception that also continues to grow?