You've heard the gimmicks and may have even considered them at some point in time. Furniture and electronic stores are known for advertising their in-store financing options that allow you to buy the goods at "90 days same as cash." You might also hear it advertised as "Buy now and make no payments until 2009!" It might sound like a good deal, but we all know that anything that seems too good to be true usually isn't.
90 Days Same as Cash Explained
When the store promises "90 days same as cash," they're essentially promising you no interest payments for 90 days. In a perfect world, you'd be able to finance the purchase then pay off the balance in 90 days. You'd never pay a cent in interest. It'd be just like paying with cash. In the real world, it doesn't work like that.
More likely than not, you won't pay the balance within 90 days and you'll end up paying interest on the purchase. If you were able to pay off the purchase in 90 days, then you'd be able to save up and make the purchase in three months, avoiding the gimmick all together.
How to Lose Your Interest-Free Days
Of course, you assume that just in case you can't pay the balance in 90 days, you'll be able to pay it in 6 months instead. That way, you'll only have 3 months of interest payments. Unfortunately, it doesn't work like that.
If your balance isn't paid in full in 90 days, the interest is backdated to the date of the purchase then added onto your balance. So, you see, you only get 90 interest free days if you pay the balance in full during that time. Otherwise, you haven't gotten the interest-free benefit at all.
Saving is Cheaper Than Financing
If you can't afford to pay for the purchase in full by the due date, you can't afford to finance it, not even on one of your low interest rate credit cards. The best option is to save up for large purchases so you don't have to worry about paying it back later.
