Why same-as-cash offers are bad
I confess that we are currently taking advantage of a 12 months-same-as-cash type offer. We did so because we thought we’d rather earn a little interest on the money that’s sitting in our bank account, instead of paying it out up front.
I felt comfortable with the idea at the time, because we had (and still have) the money. We just didn’t want to pay for what we bought with it yet. But I don’t think I’ll be doing that again in the future, and here’s why:
1. Yes, we have the money, but we’re still making payments on something. I hate payments. I don’t like something hanging out there, being owed.
2. The offer makes it easy to have a distorted view of reality. Because the money is still sitting in the bank, and we see the amount every month, it feels like we still have the money — even though for all intents and purposes it’s already spent. It’s too easy to feel better off than we actually are.
3. There is a big potential for error, and of course everyone makes mistakes. But in this case, making a mistake (paying a payment late or not having the entire balance paid in full by the due date) could be very costly. That 0% rate would jump to something like 25% overnight — and not just on the remaining amount. We would be charged 25% on the whole amount that we borrowed. It’s silly to be tempted by the possibility of earning, what 1% interest in exchange for the risk of paying 25% interest.
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September 1st, 2009 at 8:15 am
Thanks for the interesting post! Just stumbled across this blog and added it to my feeds.
There is another reason why same-as-cash offers can be bad:
If you had gone to the store to buy that very same item with cash in hand, you would have had a very good chance of getting a better price via good old-fashioned bargaining.
Cheers,
a.nonymous
September 1st, 2009 at 5:46 pm
Oh, good point! We did bargain on this too, but I bet we could have gotten an even better deal by waving around the cash. Too bad we didn’t think of that…
September 3rd, 2009 at 1:14 am
I agree. I’ve seen those same as cash ads and thought…that would be a good deal. But then I thought…after 10 months and the thing isn’t new anymore, you are still paying on it. Bad idea. Save the cash and buy and enjoy after you buy it. I prefer to do it that way, anyway.