Warning About "Same As Cash" Offers
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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! |
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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?
