Many consumers are enticed by financing arrangements referred to as “six months same as cash” arrangements. The common misconception about these financing deals is that as long as the customer pays the balance of the original loan amount within the six months, their lender will charge no interest at all. Most people who agree to these terms are not aware of the fine print that goes along with the financing.
What Does Six Months Same as Cash Mean?
An example of a six month same as cash deal is a computer that costs $1,000. The lender offers the client no interest if he or she can pay the $1,000 within the six month allotted time. It sounds like an offer that is too good to be true and most of the time it is. First of all, if the consumer misses any payments within in the initial six month period, all bets are off. The lender assumes the right to void the same as cash terms and charge interest that may be as high as 18 percent or more.
Secondly, if the customer for some reason does not pay the entire $1,000 balance by the end of the six months, the lender will charge that person back interest for the previous six months at any rate it sees fit. For example, assume that the interest rate is 18 percent and the customer only pays $750 of the $1,000 within the six month period. On the seventh billing statement, the same as cash option becomes void and the lender will charge that customer 18 percent of $1,000 plus the $250 that was not paid before the six month period. The seventh bill will add up to something around $430. Every month thereafter, the interest rate on the unpaid balance will be 18 percent. Any future missed payments can prompt an additional increase in the interest rate.
How to Avoid the Trap
The best way for a consumer to avoid being hit with extra interest charges is to pay the full balance within the same as cash period. Paying approximately three times the minimum payment each month within the same as cash period or making hefty payments is an excellent way to avoid spending extra money. Never being late or missing a payment will ensure the debtor stays in good standings. The six month same as cash deal can give a shopper a chance to come up with the money, but it is not meant to be stretched out for long periods of time. A debtor should only accept this type of deal if he or she is certain that the balance can be paid within the special offer period.
Some lenders bank on the fact that consumers may not be able to pay the balance within the six month period. The borrower can combat that by calculating his or her disposable income before making a purchase of this type. Additionally, reading the fine print on any financing deal is always recommended.