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There was time when paying for something actually meant taking the cash out of your wallet. However with Free Financing being offered by so many companies it seems that the Popeye cartoon Whimpy obviously knew what he was talking about when he coined catchphrase “I’ll gladly pay you Tuesday for a hamburger today”. Maybe he saw a value in spending someone else’s money with the benefits of being able to pay for it later.
Bedroom furniture and mattress stores constantly advertise spectacular finance offers. This helps the retail furniture stores, which are typically known for more costly purchases. It helps furniture retailers make it easier for their customers to buy a pricey new oak bedroom set or a luxuriously expensive king sized pillow top mattress. Stores advertise telling us things like “ little to no money down. “No payments till January 2099” or “Just 24 easy monthly installments of 19.95”. Sure monthly payments and differed billing sound like a great option but what do they really cost you?
The answer is more than you can imagine.
Furniture stores, appliance stores, and other large item retail stores usually offer payment programs for their patrons. They know the impulses of their consumers and play on them. They want to make it easier for their shopper to get that new mattress constructed of silk and cashmere and down. So how is it done? Retailers make agreements with finance companies such as American General, House Hold Finance (HFC) and others to set up programs like…
• Regular Revolving Credit
• 6 months same as cash / payments required
• 12 months same as cash / payments required
• 90 days same as cash / 90 days deferred payments
• 6 months same as cash / 6 months deferred payments
• 12 months same as cash / 6 months deferred payments
• 18 months deferred finance charge / 18 months = payments
• 24 months deferred finance charge / 24 months = payments
These types of payment plans to purchase house hold items are designed to make higher priced items like a new Tempurpedic memory foam mattress or a Basset bedroom set more affordable for their bargain hunter. The problem is that most of these choices in payment options cost everyone money. An agreement is set up in advance with the retailer who agrees to pay a certain fixed percentage say 6 – 8 percent based on any number of different payment options as listed above, one of which is offered to the consumer. So when a consumer decides to buy a $2000.00 bedroom suite from XYZ Company a $2000.00 the merchant has previously budgeted into the advertised “Sale Price” the additional 8 percent he needs to cover the cost he will pay to the finance company. These are the companies that will bill you for your loan.
This still is not a bad deal considering that most credit cards companies charge 8 to 18 percent and finance companies 18 – 24 percent to qualified buyers. What we all need to realize is that by paying by check or cash we could help retailers once again bring retail prices on goods down to a manageable level if everybody shopped smart. We need to remember that if a store is offering free financing, we may want to look for a competing store that offers the exact same product without free financing it could save you a lot of money. So when we see advertisements like free financing for one year or no payments for 12 months we may want to remember that if a deal sounds too good to be true it probably is.
Do you think financing is really free or do you even care? Some have told me as long as long as they don’t see it they don’t care?