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Buy Now Pay Later

buy no don't pay until 2015

One of my Facebook friends posted this surprise for his wife. I’d rather not be surprised!

I was driving to work last week listening to all the ads trying to convince shoppers to part with more of their money. One ad kept repeating that if you bought a car on Black Friday, you wouldn’t have to make a payment until next year. Car dealerships are not alone with the buy now, pay later philosophy. I’ve heard some stores offering 3-6 months or more of no payments after a purchase. It might sound like a good idea to save cash during the holiday season, but buying stuff with money you plan to have later is never a good idea.

It’s A Trick

The ad about no payment until next year was actually pretty funny. If you buy a car at the end of November through a finance plan, you wouldn’t have a payment until January anyway, so the gimmick is just that. There is no special deal. Don’t be fooled by cleverly worded advertisements!

You Probably Have To Spend More

At our office, we offer a plan called Care Credit. It’s basically like a healthcare credit card. I don’t advocate it, but it can make sense if you have a high dollar procedure and need to make payments over time. Amounts vary per type of provider but generally, you can get 0% financing for 6 months if you spend over $299. Otherwise, I believe it’s something like 13% interest.

I’ve seen people who weren’t planning on spending that much buy more just to get  0%. It would make more sense to save up the money for a few months and pay at the time of service.You might even score a cash discount.  Don’t buy more just so you can finance it!

You Are Counting on Money You Don’t Have

Whenever you finance something because you can’t afford it at the moment, you run the risk of not having the money when the payment is due. We all plan to save x amount by this day, but inevitably, if you have a payment coming up, that’s when your kid will break an arm or the car will crap out. Next thing you know, credit cards are the only way to afford necessary expenses. It’s a vicious cycle.

Payments Take Away Choices

Perhaps this is the best reason to avoid buy now, pay later promotions. Once you start making payments, you get used to making payments. It’s not a big deal to add another $50 payment here or there. After all, anyone can afford $50 a month, right?

We did this for years until our payments added up to more than double the cost of our mortgage, groceries, and health insurance combined. When you have that many payments, you can’t save for the future, and you’re forced to keep financing.

At this point, you’re working to make payments and thoughts of cutting back, taking time off, or, heaven forbid, early retirement are pipe dreams at best. You also start to look around and resent all the stuff you thought was worth financing. It’s becomes an anchor keeping you attached to the rat race that has become your financial life.

Before you set up a payment plan, ask yourself if it’s the best thing for your finances and long term goals. If you are financing a car at a low interest rate so you can invest more money each month, by all means, go ahead. If you are financing because you’re broke, I bet you probably don’t need it anyway.

What’s the craziest thing you’ve seen a payment plan for? Do you plan on financing anything this holiday season?

 

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

40 comments

  1. I hear a lot of these types of car advertisements on the local stations as well. Unfortunately they both target and appeal to people who just don’t know any better.

  2. That’s a really good point about “payments becoming the norm”. I bet a lot of people find that this is the way that their debt spirals out of control.

    “Oh well, I already make payments, what’s another $20/month here or $50/month”

    A dangerous and very slippery slope indeed!

  3. I used to be a big buy now pay later person, but it was typically with 0% financing on a store card. Looking back, if I didn’t have the cash at the time, I just should have avoided it, but the 0% financing definitely tricks you to believe you have more than you do.

  4. If my wife came home to a new car in the driveway with a ribbon on it she’d flip…in a bad way. 🙂 The only thing we’d ever finance would be a mortgage. We save for everything and purchase with cash…reduces all the risk and is so much more rewarding.

  5. We have zero plans of financing anything ever again unless we are buying a house. I did take advantage of the 0% financing offers in the past but fortunately managed to pay them off before the deadline was up and double digit interest kicked in – retroactively.

    • We did many zero percent plans in the past and usually were able to pay them off in time. Sadly, we went from one to the next and went years without meeting our saving or investing potential because of the payments.

  6. I’ve heard a lot of these ads as well. Nicole and I actually almost fell for something similar when we were first married for a car. It was a deal where you didn’t have to make payments for the first 12 months and the salesperson obviously saw they had someone who had no clue what they were doing. The payment would’ve been nearly $800 (and this was 12 years ago) for the car. SO not worth it and glad some sort of common sense entered our minds.

    • I think when the promo period is that long, you kind of forget a big payment is coming, and that’s why so many people fall behind and aren’t able to get out of debt.

  7. I didn’t realize that your debt payments amounted to more than all those big basic expenses! Good for you for getting out so quickly.

    • I guess the minimums were not that much, but to pay everything off before the promotional periods and really get out of debt before the nursing home, we had to put down some serious money. I worked my government contract job for a whole year just to pay off credit card debt. I’ve never felt like such a slave, and I’ll never do it again. Lessons learned.

  8. There is one car commercial driving me nuts right now about how the car was delivered on some kind of Christmas train and it just sort of appeared in the people’s driveway. ugh! You’re right in that people are buying and counting on having that money they don’t have. But I think a lot of people learn the hard way…I know I did.

  9. A furniture store was advertising recliners…2 for a certain price. Then they said, “just need one? Cut that price in half!” like it was a huge bargain.

  10. I’m not planning on financing anything any time soon. Maybe a house, but even that I will have to really think about it. I’ve made the mistake of financing my car (currently paid off) and I had to pay a lot more than the car was worth – after interest.

    • I am totally breaking my own rule because we are about to take out another mortgage for our latest rental property. I guess I should rephrase to say I won’t finance anything that isn’t going to make money for me and my family. A house will likely do that. A new bedroom set will not.

  11. This is the time of year when you can make payments on anything. Payment plans on furniture and mattresses always make me chuckle.

    • I do think it’s funny how expensive some mattresses are. If I’m going to pay that much, it better rock me to sleep and make itself up in the morning!

  12. If I’m not paying now (in cash) I’m not buying. Too many people fall into this trap, and I think it’s worse when you use the same program to buy furniture. Even when I was bad with my money I never fell for this. It’s just plain crazy.

  13. We have definitely become a nation with a buy now, pay later mentality. It seems like such a good deal at first look. But we forget – these are businesses and their job is to turn a profit and I don’t mean that as criticism. We all either own or work for a business that needs to turn a profit in order to pay us! But we have to be able to see the hook and truly make sure when we take advantage of any offer that it’s actually benefiting us. People don’t think through how those monthly payments adds up over time and rob them of their ability to do other things. Glad you broke the habit, Kim! And I bet you don’t miss getting those monthly bills. 🙂

    • I don’t miss any of them or the stuff they purchased. I do kind of feel guilty working in a place that offers those type programs, but as a business, you do have to find a way to get paid. I only wish everyone would be responsible and not finance more than they could afford.

  14. I think another trick with these don’t pay until deals is that there’s interest accruing over that term, so you’ll end up paying more overall than if you started paying for it right away.

    • I can say from experience that almost all the zero interest promos do accrue interest. If you pay it in full before the promo term is up, you don’t have to pay it, but if you go one day over your promotional period, you get interest going forward plus all the interest that has built up. Sometimes it is more than the purchase price itself. Another great reason to avoid payment plans!

  15. I think it’s important to avoid financing most things. I can understand a car purchase because you can get ridiculous interest rates (some even offer 0% financing for years…incredible), but once we start talking about laptops, televisions, furniture…there’s too many cheap alternatives that you can use while you save up money.

    • I agree. Even if you aren’t paying for interest, the payments just have a way of derailing your ability to pay off big debt or build wealth.

  16. I’m with you–I hate the idea of financing anything (other than a house). I suppose there are some scenarios in which it makes sense, but I’m generally of the camp that if you can’t pay cash for it today, you can’t afford it.

    When I got my Lasik surgery, they offered us a payment plan immediately and were shocked when we asked if there was a discount for paying in full up front. Sure enough, they were happy to give us a discount! And, I agree, that car would NOT be a welcome surprise :)!

    • LASIK is always less expensive if you pay up front. All the special deals you see involve full payment at time of service. Most people will finance it though, even if they have the money. Something about zero interest just sucks people in. I was that way for years, but even 0% payments mean money going toward something besides my ultimate goals at this point. We will and do have to buy things that are expensive, but I am going to try my best to never finance anything other than mortgages again.

  17. Many retail stores offer you a 20-30% off your entire purchase if you get financing on the spot. What they never tell you is that your apr for the card will be 20%, so your actually going to pay them 20% more every month that you have a balance on their card. That’s the gimmick I will avoid all the time. If you want a deal get the financing and pay it off immediately, so theirs no balance. But not many people do that.

  18. For me the big deal is resenting the stuff. Our house is full of all sorts of things we don’t need. I’m slowly working through it all. Sometimes I think it would be nice to take off a day, send the kids away, and purge like crazy. Though I truthfully need more like a week!

  19. I’m hoping not to finance anything this Christmas. It may not be reality though. We definitely won’t be taking on any new payment plans. I’m with ya on the car thing … no way! That car would be going right back. I think the hubby knows better though;0)

  20. It’s always crazy to me when people finance engagement rings. I didn’t know this was “the norm” until I got engaged! Before we got married, my husband was a cash-only kind of guy, no bank account, no credit cards, nothing. Well, he saved up his money and bought me a beautiful ring. Sure, it’s not as ginormous as some I’ve seen, but I fall in love with him all over again knowing he worked hard, saved up his money, and bought what he could afford. I later learned the people at the jewelery store were not too happy with him–they tried to upsell him and get him to finance a much more expensive ring and couldn’t!

  21. I used to be a big fan of these 0% for 6 month (or however long) promotions. On one had I still am. If you have the self discipline to pay it off in time, they can be a great thing. But if not, ouch! You better watch out for them. As far as buy now and make no payments for X months, I don’t like those because you are still accruing interest that you will have to pay back anyhow. Might as well start paying right away even if it’s not required, or don’t buy it at all (unless you have cash to pay in full).

  22. Buy now pay later is almost everywhere. I used to buy this idea. But, the downside is the money I thought I would have later is just compromised to pay for the product I promised to pay. I wouldn’t do this scheme again, except if the money I would have later is more.

  23. Yeah these ads are all over the place. Mainly because the work! I read a report that those recent Lincoln ads with Matthew McConaughey increased sales by 60%! That’s incredible since those ads listed no terms or prices or anything. Just a famous actor talking to himself in a car caused a huge increase in sales. Crazy.

  24. Love this. In my past life…LOL, payments were no big deal. But since we’ve gotten much smarter about money and paid off $85K of debt since January 2013, I’ve realized that if you have to make payments on something, you can’t afford it! It’s that instant gratification..we need to act like adults, wait and save up the $ if we want to buy something…and let interest work for you, instead of making the banks and financing institutions getting rich off of you!

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