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Buy now, pay later! Are these deals for you?

Everybody's seen ads and incentives to "Buy now, pay later!" or "Six months, same as cash!" or "One year, interest free!" What are these deals, anyway? Are they legitimate or some type of scam? When should people consider them? What should they look out for?

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Typically these retail incentives are advertisements designed to lure buyers into the store. "They're an incentive on the part of the business to get people to buy things now that they often can't afford," says Howell Edwards, vice president of business development at the InCharge Institute of America Inc., in Orlando, Fla. "It's not necessarily a scam, but it convinces some people that they can have these items or luxuries now without actually paying for them."

The deals are often set up in such a way that you buy the merchandise -- furniture, electronics, appliances -- and have six months or a year, or sometimes even longer, in which you don't have to make a payment. Or you pay no interest on your payments until a set date. Depending on how the deal is structured, if you pay the entire purchase off under that contract period, you may not have to pay any interest. If you don't pay it off, however, the payments begin, and sometimes along with problems.

"People very rarely pay it off within that year period," says Trish Lynch, of ClearPoint Financial Solutions, based in Richmond, Va. "Usually they get that year with interest free." Then, unbeknownst to many consumers, the finance company applies interest retroactively, effective from the date of purchase or delivery, she adds.

If viewed primarily as a marketing ploy on the part of the seller, whose principal goal is to get buyers through the door, then it's easier to understand some of the potential traps associated with these deals.

"The one thing consumers need to know is that most buyers may not be eligible to take advantage of these types of offers," says Sheila Adkins, associate director of public affairs for the Council of Better Business Bureaus Inc., in Arlington, Va. "Oftentimes, merchants require impeccable credit. And sometimes, even for those who do qualify, the offer is restricted to a particular model, brand or style and with limited terms."

Words of caution
If these types of marketing campaigns are legitimate, though rife with possible brambles to get snagged on, what should the average consumer look out for? What thorns lurk inside this tantalizing bed of retail roses?

First, assuming you qualify, can you afford this item? Not just now, but later, when the billing starts? "If you can't afford it now, you shouldn't take part in these kinds of deals," says Edwards. "The debt doesn't go away, you're just delaying it. There's no guarantee what your financial situation will be down the line or in a year."

Lynch agrees. "A lot of times people are using these no-interest, buy-now-pay-later deals for things they don't have to have," she says. "A lot of it is old-fashioned going back and quantifying what is a need and what is a want. If it's a want, it needs to wait; it needs to be saved for. They should only use this type of situation when it's an absolute need."

Secondly, understand what you're getting into. Jay Seaton, president of the Northeastern Ohio Consumer Credit Counseling Service in Cleveland, says, "People have to understand all the rules of the road going into it. The risks are that all the accrued finance charge potentially is due and payable if you don't meet the requirements of the contract. That defeats the whole purpose of 'three months, four months, six months, nine months same as cash.' That's not the same as cash. That's the major risk."

Potential buyers need to read the fine print in the buyer's contract. Look for answers to these questions:

  • Do you need to make payments along the way?
  • When, exactly, are payments due?
  • What penalties are you likely to have to pay if you don't follow the contract precisely?
  • Does the overall interest rate increase because of the deferral?
  • Are there additional handling fees that have to be paid to defer payments?

"Consumers aren't aware of the hidden charges and the different things that might be charged," says Lynch.

-- Posted: July 29, 2005




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