Same-as-Cash? Who would say No to this?…………

So, you’ve picked out that new TV and are ready to buy it.  Let’s say that the total cost to you is $1,250.00.  Yes, it’s a bit much to pay for a TV, but, you’re not worried, because the TV has several new features, including:

High Definition;

Picture-in-a-picture-in-a-picture;

The ability to show you who is calling you on the phone and what they want;

The ability to record the show that your neighbor is watching, and

The ability to play two DVD’s at once. 

While you are deciding which credit card to use (and right AFTER you say “No thanks, I would definitely NOT like the extended warranty”) the clerk remarks: “You know, if you sign up for our Zero interest credit card, you’ll save 20% off of the price of the TV. It’s 12 months Same-as-Cash.”

“Well…………sign me up!” (I mean who doesn’t want to get out of paying interest for an entire year AND save 20%, right?) 

While a Same-as-Cash deal (often called No interest Financing; or a same-as-cash credit card) has its good points, it’s not without its issues.   

What is so attractive about Same-as-Cash offers?

This is the easy question to answer.  Instead of paying cash or using your credit card, (which might already be full) you can pay the balance in the amount of time the retailer specifies.  All you have to do is fill out the credit application at the register; (maybe) answer a few questions over the phone with their credit department and you’re done!  On paper, this seems like a no-brainer. But, is it really?  Let’s look at what happens, once you sign up for a Same-as-Cash deal. 

What you’ll get in the mail

Once you complete the deal, the lender will send you a few items. You will get a  “Congratulations, you have a new account with us!” letter; a credit card agreement and LOTS of promotional materials.  You will also start receiving monthly statements.

The Agreement:

The most important thing about the agreement is that it will tell you what the actual interest rate is.  While it’s true that your interest rate is zero %, that is what is referred to as the ‘Promotional Rate’.  For every other purchase, there is another interest rate, called the ‘Interest Rate for Purchases.’  That is the interest rate that you will pay if you use the credit card to purchase anything else (or if you misbehave in some fashion – See Below)  That interest rate is usually north of 25%.  (Here’s a look at a chart of what some major retailers were charging on their zero percent deals in 2010)  We at Consumer Courage call this the ‘Crazy High Interest Rate Punishment’ or CHIRP, for short. 

The Monthly Statement:

This is probably the most confusing part of the Same-as-Cash deal.  The monthly statement will contain the Schumer Box (which is the table that is on the front page of all credit card bills that tells you what the interest rate is and how long it will take you to pay off the balance if you make the minimum monthly payment).  But, be careful: if you pay the minimum payment amount that is on your statement, you will NOT pay the balance off on time and will incur the WRATH OF THE CHIRP! 

The Promotional Materials:

You will get a constant stream of letters from the lender.  All of these letters will be trying to get you to borrow more money from them.  But watch out! Every one of these offers will come with interest rates that are in the 20% range, or higher.  You’ll do yourself a huge favor if you just learn to throw away everything that you get from the Same-as-Cash lender that is not a bill. 

What else will make the CHIRP kick in?

If any of the following things happen, instead of paying zero interest, you will have to pay the high rate and incure the WRATH OF THE CHIRP! 

If you fail to pay off the ENTIRE balance before the date that the promotional rate expires; 

If you miss a payment;

If you make a payment that is late;

If you use the credit card that they send you to purchase other items.

As if the CHIRP weren’t bad enough, if it kicks in it will be retroactive to the date of the purchase AND it will be applied on the entire balance that you borrowed – no matter how much you have paid. So, for our thousand dollar TV (assuming the CHIRP is 25%), if it kicks in (even if your balance due is only a dollar) you will owe the full $250 ($1,000 X 25%). 

If you use a Same-as-Cash deal to buy something, how can you protect yourself? 

First – Figure out how long the Same-as-Cash lasts;

In our TV deal above, this is 12 months

Second – Subtract one month from that total;

The new number is 11 (12 months minus 1)  

Third – Divide the balance due by the new number and pay that amount every month. By the time the last payment is due, you will be done paying the original balance.

$1,000 divided by 11 payments = $ 90.00 per month

And lastly: Don’t touch the credit card that they send you!   As soon as it arrives in the mail – cut it into itty-bitty pieces, so you are not tempted to use it.  That way, you can watch TV in peace.

 Posted by: Mark Wiseman