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When Don’t-Pay deals don’t pay off

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You’re in the market for a big ticket item like renovation materials or a major appliance and then you see an advertisement for just what you need with a headline like this: NO MONEY DOWN, NO PAYMENTS OR INTEREST FOR 12 MONTHS. Well, that certainly is enticing – but ‘don’t pay’ deals can end up costing you a lot more than you bargained for if you aren’t aware of all the terms and conditions attached to them.

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. And 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 at the moment you make your purchase.

Here are two typical examples of ‘don’t pay’ deals that look good until you read the small print.

1. Promotion:

  • No interest if paid in full within six months
  • Minimum $299 purchase No annual fee, merchant fee or administration fee

Small print:

  • Annual interest rate of 28.8%
  • 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.

2. Promotion:

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

Small 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.

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

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