Beware of “like cash” payment offers

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If you spend time listening to the radio in your car, you’ve probably heard a few “six months like cash” commercials. If you’re not looking for a used mattress, washing machine, or car, you probably don’t think much of these ads. But one day you will want to make a major purchase for a tangible item. And it can help you know what “like money” means before it’s offered to you.

Regardless of how many days “like cash” is, that’s a tricky way of saying you can buy something with a deferred interest loan. You’ll pay exactly the same price as listed on the item’s tag, as long as you make it within the specified time. You can take the item home that day and you often don’t even have to make any payments until the end of the promotional period, usually three or six months, but it can be longer. If you don’t pay the full balance of the item before the end of the “like cash” period, you will be charged interest on the entire purchase.

American financial solutions, a nonprofit credit counselor, gives this example:

Let’s say you buy audio equipment for $500. During the 18-month “like cash” period, you pay off your balance at $100. If the interest rate is 25%, on the day the interest is charged, you will have $125 added to that $100 bill. Instead of paying $500 for audio, you’ll now pay at least $625 by the time you’re done.

This is different from a zero interest rate credit card offer, because in most (but not all) case, the interest you have to pay after the end of the promotional period of the card does not retroactively reach your entire initial balance, but only what remains.

If you are in trouble and need a particular item now, you should only consider a financing offer “like cash” if you are sure that you can pay the balance before the end of the free period.

If you have enough credit to make the purchase, you might be better off paying with a credit card instead of taking out a new loan with those terms. You won’t get an interest-free period, but you will see that interest decrease as you pay off the balance.

Of course, it’s better if you can pay the tab with cash. But if you’re in a bind, don’t walk into the appliance/furniture rental/car rental lot thinking that a “same as cash” deal will make your financial life so much easier.

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