Aren’t financing options like “buy now pay in 3-6-12 monthly installments usually interest free” a precursor to financial recession?

[cordel]

I am no financial expert but when I see how many online stores now embraced all these financing options that allow you getting into debt so easily it feels a bit irresponsible that it’s allowed. What’s worse is that nobody educates you properly before you click the “accept and buy” button.

It was always the case that you could but there would be proper checks in place, now it’s made into such an attractive and open-to-everyone product that I don’t think a lot of people know the implications for.

Poor people who suddenly are unable to pay, slapped with massive interest will have no choice but to default.

Compounded with inflation this is really worrisome.

What are your thoughts? Am I being too sceptical here?

 

[aimee17]

@cordel I think it depends entirely on the person/their situation. I have benefited from these “no interest financing” offers many times. For example, when my refrigerator suddenly died. I couldn’t have afforded at that time to go out and buy a new fridge out of pocket. Nor could I have gone without a fridge for the length of time it would have taken me to save up for one. So I bought one on the NIF and was able to have it delivered quickly and then pay it off in installments over 12 months.

The catch is, of course, that if you don’t pay it off in full by the end date, you get hit with a huge amount of back interest. I had this happen once, too. I simply lost track of when the time frame expired. I made a payment and still owed around $150 I think, and I planned to pay that full amount on my next payment. Turns out the next due date fell about a week after the expiration and when I went to pay the final bill, there was about $350 in interest tacked on. Luckily, I was able to call and convince them to waive the interest, provided I could pay the full balance of $150 off immediately over the phone. (I had been prepared to pay that anyway, so it wasn’t a problem.)

Other people might not be so lucky and might have to pay that $350 interest.

If you don’t keep up with expiration date and let it sneak up on you, or if you have financial issues come up and you fall behind on the payments, it can be really bad.

But again, it depends on the person/situation. I’m super anal about staying on top of the expiration dates now and always keep them written down, so I won’t slip up again. And I make sure I have enough in emergency savings to pay it off in full if something happens and I need to. To me, the No Interest programs are of value. To someone in dire financial straits who is more likely to end up in a bind, they’re more dangerous.

 

[hildaeben]

@aimee17 Thanks for sharing your experience. I've never taken one of these deals before but have been considering it, especially with respect to a new vehicle. You've improved my awareness of what to look for contractual. Appreciate you

 

[aimee17]

@hildaeben Good luck, friend!

 

[survive777]

@cordel There are always signs of worry, and always signs of hope. Can you tell which is true at any given point in time? I sure can't.

Ultimately I don't think it's very productive to try and predict the future in this way. My personal finance plan is built so I can ignore the noise and just keep on keeping on.

 

[lilcsinthespring]

@cordel I see signs like this all the time in low income areas, you will also see rent-a-centers and similar stores as well. It is basically a bet that companies are taking in hopes you don’t pay it off in time, so the amount can accrue interest and they end up profiting. If you can truly afford the item, more than likely these ads don’t stick and you don’t give them any thought. I see it as a tactic towards the poor and under privileged, and just another way to exploit them. I believe the worst businesses are the “Get your paycheck early!” types. Slumlords.

 

[normp]

@cordel It’s for people who wanna live beyond their means. Great idea to trap people. But this started like in the last 5 years

 

[angelsm355]

@cordel Debt has always been allowed to an irresponsible level. That has not changed any time recently.

People have been financially screwing themselves over with debt for decades.

 

[resjudicata]

@cordel I will use 0% financing, but I make sure that I have the full amount for the item in my savings account. Then I just set up automatic payments so that it'll be paid off one month early.

 

[lazhar]

@cordel Those deals have been around for years. Do you know about Finger Hut? They've done that for as long as I can remember, even back when they were a real catalog instead of a web site.

There are a lot of positives about using 0% financing if you are smart about it. I did it with my car and we've done it for furniture. The key is to stay on top of your payments and pay it all off before the final due date. I had the funds each time to pay for the item, but wanted to leave them invested and just take out 0% loans.

The implications have always been there for those unable to pay. There's nothing you can do to save people from themselves.