Friday, July 13, 2012

Zero Percent Deals – Are they steals?

Zero percent deals always seem so attractive! The idea of not paying interest on a purchase is appealing to all of us. Often we see zero percent deals related to electronics and furniture. We also see them used in relation to new car sales, but those deals are different and I will address them later in another blog.

For years, after the holidays, a local electronics store advertised Mitsubishi big screen televisions for zero percent interest. The concept is: I buy a big screen TV for $1,200. I pay $100 each month for twelve months and at the end of the period that TV is mine. It seems so simple, doesn’t it? That’s just it; the lender wants it to appear simple.

If you ever read these zero percent consumer contracts, you will find that they are consumer traps. Does it seem too good to be true? How can they afford to give this stuff away at zero percent? Very simply, they don’t. They are depending on the consumer to make an error.

If you are one day late with your payment, the lender will change your interest rate to 29.99% APR and back date it. This means they will send you a bill for the interest you would have paid had the account been at 29.99% APR rather than zero percent APR. If there is one dollar left on the balance at the end of the time period, you will receive a bill backdating your interest to day one at 29.99% APR. Why? Because by being late or leaving a balance at the end of the term you have broken the contract and are now subject to penalty interest.

A word of advice. If you are at the point where you think “this is the last payment”, find out what the actual “Pay-off” balance is before making that payment. Pay that amount to be sure that once the term is over, the balance is zero! This same rule applies with any loan once you are ready to pay it off. Don’t assume that your normal payment amount is what you will pay to pay off your loan. I’ll save that discussion for another blog.

The answer to this is for all of us to read our loan contracts thoroughly! READ YOUR CONTRACT. Reading the contract and understanding your rights as a consumer are the best weapons we have to combat those who would want to take advantage of us because they think we are naïve. If you read the contract and found those consumer traps I mentioned above, would you sign it? 


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