I’m sure you’ve seen same as cash offers in stores or on television commercials. We’re bombarded with 90-days same as cash, 6 months same as cash, and even 12 months same as cash offers!
Seems too good to be true, right? Well, when you have to stop and ask yourself, “What’s in it for the lender?” that’s a good indication that you’d better scratch beneath the surface and learn what’s going on.
How Same As Cash Offers Work
It’s tempting to walk into a store and buy a new computer or furniture suite with a same as cash offer. Sure, you could wait and save up the money—especially for an item you don’t need right away—but with an offer like this why wait?
The problem is that when you learn how these offers work, you realize that it’s not even close to being as good a deal as paying with cash. In fact, it’s almost as if it’s an enticing snare.
That’s exactly what it is because lenders know that nine out of ten shoppers won’t manage to pay the debt off in time.
Let’s say you purchase a new computer for $1,000 with a 6 months same as cash deal. Your plan is to pay it back within the six-month window to avoid the interest payments. That sounds like a good plan, but if you’re not careful, you’ll get caught and end up paying a whole lot more.
Now, keep in mind that I’m not talking about the type of deal that offers no payments and no interest for a certain period. Same as cash offers usually require you to make a minimum monthly payment from the outset, it’s just that they defer the interest for the duration of the promotional period.
So, to pay off your new computer inside the six-month no interest window, you’d need to pay at least $167 per month. Your minimum payment may not be equal to this, so you’d need to pay the extra in order to own your new computer free and clear.
If you somehow miss a payment in the middle, the debt immediately converts into a high-interest ball and chain somewhere around 18-23%—and some of these same as cash deals can have rates as high as 40-50%!
Not only that, but the lender will immediately assign all of the interest that you would have had on your previous payments. This means that you suddenly owe not only the remaining balance AND the recurring monthly interest, but ALSO any interest you would have incurred from the very beginning of the loan.
Even if you never miss a payment, the above scenario remains true if you’re unable to pay off ALL of the loan within the promotional period. So, if you were only able to pay $975 of the total $1,000 you owed, then you’d end up getting billed for the remaining $25 PLUS all of the interest from the beginning of the loan period.
How to Avoid Same As Cash Offers
This sounds like a no-brainer, but the best way you can avoid getting trapped by a same as cash offer is to avoid them altogether.
If you think about it, most of the products you’ll see offered in conjunction with same as cash deals are items that you can probably wait on purchasing. Big ticket items such as furniture, entertainment systems, and computers are not needs. So how should you purchase such items?
Seriously, save up the money and pay cash. If you find yourself tempted by a same as cash deal because you think to yourself, “I can come up with that much money in that amount of time,” why not actually take that time to save up the money instead.
Listen, life happens, which means that you may be in the position now to make payments without fail and own that item free and clear before time runs out, but what happens if you get sick and miss work, or get in an accident, or have a family emergency?
Learn to delay gratification and, therefore, eliminate risk. Be patient and save up the money.
Once you’ve got your cash-in-hand, take your shopping to the next level and see if you can find an even better deal than you first saw in the store.
I’m Jeff M. Miller, and I help ordinary people who are stuck in a rut change their behaviors so they can be extraordinary. I’m an entrepreneur who retired from my full-time job in my early 40s to work from home. I’m a financial counselor, life coach, graphic designer, and passionate believer in helping others improve their lives a little more each day.