"No payt. til 2009" - what's the catch?

 I see it all the time - furniture, spas etc -
NO payment until some time waay in the future.
What's the catch?
Has anyone ever successfully purchased anything this way?
My neighbor swears he has done this and never a problem.

 
Usually, the price is inflated over its real market value.  The loan is made
by, or immediately sold to, an outside firm.  If you read the loan document,
you will find that if even a dollar of the loaned amount is not paid before the
deadline, you will owe ALL interest -- at the inflated rates -- from date of
purchase to date of final payment.

So, you buy a bedroom set for $1000, "no payment for 1 year!"  It's really only
worth $900, and you could buy it for that at another store if you shopped.
But, you buy it and sign a bunch of papers, including a loan document.  The
interest rate is about 25%, but does not come due if you pay before 1 year is
up.

The store sells the loan to GE Consumer Loans for $910.  GE bets (and usually
wins) that about 70% of the purchasers will NOT pay it in full before the
deadline.  GE doesn't even send you a notice/bill just before the year is up,
but probably sends you a bill for $1000 + interest after 367 days.  So, GE gets
25% of the $1000 up front, plus the $1000, plus any interest while you figure
out where to come up with $1000.  That gives them 27.4% of their $910 for the
first year.  Decrement it by the 30% that figure out where and when to send
their $1000, and they make 19.2%.  In a market of 5-8% money, they make a
fortune!

 

You dont get a discount on the price and its easy to
just make the payments when they start to be due,
and waste even more money on the interest charges.

It also cons the stupid into buying what they cannot afford.


Depends on how you define success.


Only because he's too stupid to notice the downsides.

 
When something isn't selling well, rather than lower the price,
the merchant would prefer to get a sale commitment at full price
and collect  the money later.

This also attracts sales from people who are financial nincompoops
who have no money, but can't resist the nothing-down terms.

There's also the good possibility that the buyer will violate the
terms and be charged an exhorbitant interest fee anyway.

Don

 

The catch is that interest is added during that whole time. In some
cases, it will say zero interest, but that only happens if you pay the
balance in FULL before the date. One penny after that date, and you
get charged the interest from day one.

So, unless it is zero interest AND you pay in full before the date
specificed, you will get charged interest from day one and the amount
due will be a lot higher than the price you thought you were agreeing
to.

Imagine the interest for the next 2 years on a $5,000 item.