Comments on: Interest Free Payments…are they a bad idea?

By: Scott @ The Passive Dad

Scott @ The Passive Dad — Sun, 24 Aug 2008 03:39:39 +0000

You may also want to consider the impact this new credit line would have on your credit score. It might not be an issue for you, but if someone wanted to purchase a home or refinance, a bank could see your new credit line as a potential strike.

I took advantage of a no-interest CC card from Home Depot when we replaced our home windows. It worked for us, as we had budgeted for the windows and still earned interest on our savings account.

By: The Happy Rock

The Happy Rock — Sat, 23 Aug 2008 04:31:29 +0000

Great discussion! Mathematically most people forget to factor in risk as part of the equation, so interest free seems like a great deal. Companies offer these things beause they make a ton of money off of them.

By: John

John — Fri, 22 Aug 2008 18:24:39 +0000

Great post, DD, really generating a lot of comments. I’m actually surprised that most of the comments so far have been against using the free financing.

I can certainly see the argument that Frugal Babe and Discount Knives are making for using such financing. Like I said, I’ve done it in the past. As long as you don’t screw up and it doesn’t cause extra stress for you, I can see why people would want to use it. My guess is, the first time a person messes up and ends up having to pay all the interest that started accruing on day 1 will be the last time that person uses it.

On his website, Ramsey has a statistic that 78% of those free financing deals are not paid off on time. I can’t vouch for the stat but if it’s true, a LOT of people are getting burned doing this.

By: Discount Knives

Discount Knives — Fri, 22 Aug 2008 18:04:20 +0000

I would have to agree with frugal babe. I like interest free financing when its available and only when it is a large purchase and I have the money already saved up. That way I can keep gaining interest on my money and using it to benefit me rather then the credit card companies get interest off of my money.

By: Frugal Babe

Frugal Babe — Fri, 22 Aug 2008 17:55:50 +0000

I’m going to be the odd one out here and say that I like interest-free financing. When we had debt from starting our business several years ago, we transfered it to a zero percent credit card. we had to make one purchase a month and pay the bill on time, but it allowed us to take about two tears to pay off a $4000 balance. Total interest over that time was about $10 – on the new purchases.
We remodeled our kitchen in Feb this year, and put about $2100 on a Home Depot card that we opened in order to save $200 up front. From the beginning we had the money to pay it off, but we’re stretching it out over the whole year in order to keep the money earning interest as long as we can. I get email reminders to pay the bill, although we technically don’t have to pay anything until the year is up – no late fees, no interest, no payments at all for a year. We did the same thing with a computer last summer.
We rarely make big purchases and we don’t pay interest on anything except our house these days. But when we do have a large purchase that can be done with zero percent financing, we definitely consider it.

By: Sue

Sue — Fri, 22 Aug 2008 17:49:03 +0000

I smell danger in the fact that you are even considering doing it. I can say in the past I was offered a similar deal for buying carpet and the saleman was surprised when I handed over a check instead. Why not take financing? Because it is financing. When your hot water heater leaks, your dish washer breaks and your basement floods twice you won’t have the extra cash on hand to make the payments. Buy with cash then save up for the next item. Can’t go wrong that way.

By: Link Building Bible

Link Building Bible — Fri, 22 Aug 2008 16:41:45 +0000

If I have the money and I am planning on purchasing something, I don’t think I’ll go for the payment plan. I have had a few times where i forgot a payment (it wasn’t even that i didnt have the money, just forgot) and lost the perks of a certain card/payment plan.

So for me, I just need to pay the money…. though, playing the arbitrage game… if you do have the money in a 3% account or something, and setup automatic payments out of that account onto the interest free finance plan, then it may work out for you….

By: Greg Kurts

Greg Kurts — Fri, 22 Aug 2008 15:43:51 +0000

I like the Dave Ramsey mentality of “90 days same as cash is not same as cash”, but I don’t always follow it. Much like the author, if there is something that I’m purchasing anyway and I can get it at that time on one of these same as cash plans, I usually do it. However, I like to set up automatic payments on the account to pay it in full before the grace period is up.

By: John

John — Fri, 22 Aug 2008 15:22:23 +0000

To piggy-back on Ed’s point: Ramsey likes to say that “90 days same as cash is NOT the same as cash.”

I’ve done this (no-interest financing) a lot in the past and luckily never got burned. I was also paranoid about missing a payment and getting charged all the back interest. So I would always set up payments to make sure I paid it off well in advance.

So, look at that right there – I could have paid cash, owned the item outright, and maybe got a discount as Ed mentioned. What I did instead was used the “free” financing and then spent the next few months running the risk of having to pay the interest while being stressed about screwing up the payments. To me, that was not worth the few dollars in interest I earned on that money.

By: Ed

Ed — Fri, 22 Aug 2008 13:46:27 +0000

In “The Total Money Makeover” Ramsey makes a great point. If you are buying, furniture and you start flashing some bills, there is a good chance that the salesman will attempt to work a deal. If you walk in looking to finance. There will be no deal made. You lose.