Have you ever gone into a retail store and seen signs that say “90 days same as cash!”? Or maybe “No Payments and No Interest for 90 Days!”. Whether it is for furniture or electronics, they have all sorts of marketing statements for these kinds of programs. You look at this offer and think that it is a deal. And if you took business classes they probably taught you to use OPM, Other Peoples Money. However, the truth is that 90 days is not the same as cash.
80% of people do not pay it off within 90 days
This means that if you do not pay it off within this time period you will not only begin to be charged interest rates above 20%, but you will have to pay back interest as well. Here is a brief example:
You buy a TV and surround sound system for $4000 on 90 days same as cash. You are not able to pay it off in time and therefore you pay 24% interest which includes interest for the first 90 days. Lets say you pay it off in 12 months. You end up paying $4,960 for that TV! This is $960 in interest for something that you thought would be the “same as cash.”
You can often get a deal when you pay with cash
If you took actual CASH to the Electronics store, they sometimes take less than the asking price. So if you took in $3,700 for that same setup and tell them that you are willing to buy today, chances are they will make the deal happen. I know of a couple of stores in our state, Ultimate Electronics and Spencers, where they are willing to work with you.
So compared to 90 same as cash, it seems like just saving up and paying cash for it would potentially save you $1260.
One last thing. Let’s look at the opportunity cost of 90 days same as cash. If you were to pay cash instead and invest the savings in a mutual fund that grew at an 8% annual yield for 40 years; you would have $30,584.12! I hope you can drive your TV out of the electronics store for that price.
I know that it can be tempting to want to buy something now with someone else’s money. Especially when it is at 0% for 90 days. However, there is risk involved if you do that. As mentioned above, the interest rates are extremely high and statistically the majority of people don’t pay it off in time. Because of this, what you thought you were getting a good deal on, really is more expensive than if you just went in and paid cash. So before you fall for the marketing gimmick, I hope you think twice and save yourself some of your hard-earned money.