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When don’t-pay deals don’t pay off

You’re in the market for a big-ticket item like renovation materials or a major appliance when you see an advertisement for just what you need:

NO MONEY DOWN, NO PAYMENTS OR INTEREST FOR 12 MONTHS

Deferred payment options are a popular promotional tool for many retailers, and an uninformed consumer can get hit with some hefty fees if the purchase item isn’t paid off within the promotional period. Even if just one cent is left unpaid after the payment due date, you will usually be charged interest on the whole amount of your original purchase. Because most ‘don’t-pay’ deals are financed through financial institutions, they usually involve accepting a retail credit card with annual interest rates often in the 20 to 30% range. As well, most of these promotions include additional administration or merchant fees (except in Québec) that can amount to $100 or more and are tacked on the moment you make your purchase. Here are two typical examples of don’t-pay deals that look good until you read the fine print.

Promotion #1

  • No interest if paid in full within six months
  • Minimum $299 purchase, no annual fee, no merchant fee, no administration fee
  • Small print: Annual interest rate of 28.8%

Fine print:

  • Interest accrues from purchase date and is waived if each minimum monthly payment is made by due date and the purchase price is paid in full by the plan expiration date
  • If no payments are made or the balance is not paid by the expiration date, interest will be charged at 28.8% per annum

Promotion #2

  • 18 months, no payment, no interest
  • Minimum $250 purchase
  • No interest accrues during the promotional period

Fine print:

  • Annual interest rate of 29.9%
  • Merchant fee of $129.95 is added to the purchase
  • No interest accrues and no payments required during the promotional period
  • If the balance is not paid in full by the promotional due date, the unpaid balance is converted to a regular credit card purchase
  • A preferred rate will apply at 29.9% on the outstanding balance and a deferral fee of $42.50 will be charged
  • Minimum monthly payments of greater of 3.5% of the outstanding balance or $10 are due

It pays to look very carefully into don’t-pay deals before you sign on the dotted line. Take the same care with your overall financial life by getting good advice from your professional advisor.

Reviewed: June 2, 2014

This column, written and published by Investors Group Financial Services Inc. (in Quebec – a Financial Services Firm), presents general information only and is not a solicitation to buy or sell any investments. Contact a financial advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.