|Home | Protecting Consumers | Safeguarding Children | Seniors | Law Enforcement | Site Map | Search|
No-Interest Financing Can Cost You Plenty
Interest for 6 months"
"Free Financing" offers seem to be everywhere these days. If you are a careful consumer and read all of the fine print, you might be able to save some money with a "no-interest" buying plan. But beware - many no-interest offers carry hidden charges that can more than make up for the interest charges, or are not really offering what they say.
Here are some questions to ask before you sign up for a "no-interest" financing plan:
"No interest" financing plans can carry some hidden costs. Here are some you might encounter:
More than half of the consumers who signed up for "no interest" financing plans with one company did not pay off the balance in the time required and ended up paying interest.
If you are interested in a "zero interest" offer, read the fine print in the advertisement and the financing agreement. Make certain you understand exactly how the store's "zero interest" program works. There are many different types of programs. Also, if you are not familiar with the product's price, do comparison shopping to make certain the product is not available elsewhere at a substantially lower price. A "zero interest" purchase will save you money only if you are able to comply with the terms of the program and the purchase price is a reasonable one.
Can You Compare the Costs of Paying for Things Over Time?
Unfortunately the answer is not always. In 1968, Congress passed the Truth in Lending Act requiring merchants to disclose to consumers borrowing money or purchasing goods over time the Annual Percentage Rate ("APR") of interest. For transactions regulated by that law, all merchants must compute the APR the same way and consumers can easily compare the cost ofcredit.
In recent years, however, alternative forms of consumer credit transactions, such as rent-to-own and auto leases, have emerged in the marketplace. For the time being, merchants using these forms of credit transactions are not required to disclose the APR. It is therefore extremely difficult for consumers to compare the cost of credit when entering into such transactions. Although it is not as accurate or easy as comparing APRs, consumers entering into these transactions need to find out the total amount of money they will end up spending under the contract. They can then compare that total cost with the total cost they will pay under other forms of credit. The bottom line is that consumers must always learn the cost of the credit before signing on the dotted line in any contract.
Attorney General of Maryland 1 (888) 743-0023 toll-free / TDD: (410) 576-6372