How I Learned The Real Meaning 0f “Six Months Same As Cash”

Shortly after my wife and I were married, we decided we needed to replace several pieces of furniture in our apartment. Our furniture at the time was still the furniture we used during college – in other words, most of it was from the goodwill store.

So we did what many people do when they are thinking about shopping for furniture – we checked out some websites along with the fliers from the Sunday paper. One of them, for a large furniture store in the Des Moines area, advertised “six months same as cash,” which we took to believe that it meant that for the first six months of payments, there would be no interest at all.

How wrong we were.

We bought a kitchen table, several chairs, a couch, and a bedroom suite all at once on credit, totaling just south of $5,000. When the bills started to arrive in the mail, we made double payments, thinking that if we got a lot of the balance paid off now, we wouldn’t have nearly as much to pay interest on in the future. We sat back on our couch and were proud of how smart we were.

Well, then the seventh bill came and the balance on the bill was almost as high as the original cost of the furniture. Yes, after paying double minimum payments for six months, we were actually almost back where we started. We were stunned at this, but when we read through the agreement, this was exactly what we had agreed to.

Why? The phrase “six months same as cash” doesn’t mean what you might initially think it means. Here’s how it really works.

Let’s say you buy a new flat panel television for $1,500 on a twelve month same as cash plan. You realize that by paying $125 each month, you’ll have that $1,500 paid off by the end of the twelve months, so when each bill comes, you immediately pay the $125. At the end of the twelve months, you own your television free and clear.

On the other hand, let’s say you’re late for a payment somewhere in the middle. As soon as you miss a payment, not only does the debt become a high-interest one almost equivalent to a credit card (for our furniture, it was 18.9%), but they immediately assign you all of the interest you would have had on the financing in the past. In other words, with that kind of interest rate, you suddenly have an extra $106 tossed onto your balance.

The same thing happens if you don’t get the entire balance paid off by the end of the period, and quite often paying the minimum payments won’t get the job done. This is exactly what happened to us. We had a $5,000 balance that was “twelve month same as cash” and it had minimum payments of $90. So we happily paid a double payment each month ($180) and got every payment in in plenty of time. What happened? At the end of the twelve months, they dumped almost $900 in unpaid interest onto our balance because we exceeded the “same as cash” period.

Here’s what you need to do if you buy something on such a payment plan. First, don’t miss a payment, no matter what. As soon as you miss a payment, it basically becomes high interest credit card debt. Second, pay off the whole balance before the end of the “same as cash” period, even if that means you have to pay more than the minimum balance. Obviously, the best option is to just pay for the whole thing in actual cash if you can.

One more thing: some places have what they call a “debt cancellation program,” which basically says that the store gets paid in full if you die or have a very major incapacitation. It’s a ripoff for you because you’re the one that gets charged a fee on this – you are actually paying to ensure that the store gets their money no matter what. If there is any mention of a debt cancellation program, tell them you’re not interested.

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  1. Jeremy says:

    Been there, missed that by one day. We happened to sit down and read the fine print about one week before we almost ended up in the same position you described. And it was for furniture as well! All I can say is that feeling must really suck…

  2. shawn says:

    This is exactly why Dave Ramsey suggest avoiding “same as cash” deals. I have done these in the past and not had to pay any interest. However, going forward I’m going the Ramsey no debt ever plan (except my house). If I can’t save up for something I don’t need it. I’m even doing a couple thousand dollars of business expenses per month on my debit card.

  3. Pete R says:

    I agree to avoid them but if anyone decides to actually use one of these deals the best advice is to read all the fine print and ask lots of questions before you sign. If the contract has a toll free number, call them instead of asking your sales rep because the sales rep is looking to make the commission in most cases and will omit something if it might nix the sale.

    I actually had a great experience with one of these but it was a little different from the plan you had. On this plan if you paid even a dollar towards the balance before the 6 months (or whatever it was) you were now responsible to pay all the interest and payments from that point on.

    I think the theory was if you make payments all along and be done before they can start charging interest they lose money. BUT if they let you not pay a dime until then you won’t have the money to pay in full and they’ll hit you for interest for much longer. HA, I fooled them.

    About 5 years back my friends and I went on a huge shopping spree for band equipment on my credit. The deal was, we use my credit because it was the best and everyone pays me back before the end of the plan. I found out that it was an all or nothing kind of plan from a friend at the place which was lucky. So of course, I saved the cash for the whole bill just in case which was good because some of them didn’t hold up their part.
    PS the interest was 17.99%

  4. shadox says:

    Yet another way in which the fine print is designed to entrap you.

    I find it best to assume that there is always a catch, because nearly always a catch really does exist…

  5. Wylie says:

    Oops! Sorry you did not understand this. One trick is to open a credit card with 0% for balance transfers. Then after six months on your original purchase, transfer the balance to a 0% card. These too expire, but you can keep transferring or pay of the balance.

    I disagree with the comment above that these should be avoided. A savvy shopper can use this to keep cash in a high interest savings account. But you do have to understand the details!

    FYI- I like your site and am adding it to mine. Please ad me to your blogroll if you like mine!

  6. Benji Gonzalez says:

    I don’t understand this. It was a deal, if you paid off the amount that you financed within the specified period.

    I don’t think these people operate off the “gotcha” scheme that credit card companies do. Their primary goal is to move merchandise and hopefully develop a repeat customer. Financing is a tool for the retail person and not for the customer. Of course it is a bonus for the customer because there are many people that use “12 months same as cash” financing expecting a windfall (tax return or bonus) within that period and this way they can use someone else’s capital without any cost to them.

    Its a good deal for someone that uses it correctly. If you are someone that has problems managing your money than you are also someone that is more than likely to default on the purchase and require either costs in collections or a loss altogether if you decide not to pay.

  7. Trent Hamm Trent says:

    Benji: if the payment plan enables you to get the item paid off before the end of the “same as cash” period, it’s fine, but in our case, the minimum payments did not. It may be clear to you, but at the time it was not clear to me, and based on other comments here, it was apparently not clear to others as well.

  8. Andrei says:

    I have used “same as cash” loans many times. Each and every time I was paying them out in full before the end of the term. On each occasion I read the fine print and I new precisely what I was up against.
    “Same as cash” loans can be useful if you are confident, that you can close it before the end of the term. Of course, there is a catch and a trap if you are not careful. Same story is with 0% card offers. Say, you found a card with 0% for first 12 months. All looks fine but there is a balance transfer fee of 3% of transaction or minimum of $50 whichever is greater. Would you take this offer? I’ve seen things like this before.
    Moral: always read the fine print.
    Another twist is that any credit that you open pulls back your credit score.
    The last “same as cash” offer I did was over a year ago, on furniture, of course. Even though I had enough money, I went with the store credit. The difference was that I kept cash in ING Direct savings account and was collecting interest on it for six month. When the time came, I pulled the money out and paid out the loan. Now I’m enjoying couch, chair and a rug paid in full.
    P.S. I enjoy reading your blog. I have picked up a few things or found reinforcement of my own strategies in your words. Keep up the good work.

  9. Mardee says:

    And therein lies the problem – these types of deals may be legitimate and even savvy IF the consumer understands the deal and goes into it with full knowledge of the benefits and risks. The problem is that these companies KNOW that most consumers don’t read the fine print and therefore are going to default in some way, making it easier for the company to collect additional money. It’s a profit-making venture for the company.

    There are so many consumer traps out there right now that any article like this that raises awareness of these traps is welcome in my book. I have one client who is paying 34% interest on a credit card debt because he didn’t understand that if he was one day late with his payment, his introductory 3% rate skyrocketed.

  10. lori says:

    I like the previous comment above about transferring to a 0% card until the balance is paid. This, of course, works for people who have great credit to begin with. If you don’t, you will not qualify for a 0% rate.
    I think it all goes back to developing a savings plan. Right now, I honestly would rather furish my house with second hand/goodwill/garage sale finds than go into debt for furniture. I can get by with second hand furniture. There are things in the house that are best not bought second hand – things like a hot water heater. Again, it is best to have savings to deal with that. I had a great, great uncle who was a millionaire several times over. When he was 90, his hot water heater went out. It took him six weeks of shopping before he found the heater he wanted at a price he wanted. He willingly went without hot water for six weeks to find the best deal. I thought he was nuts, but then again, that is why he died with several million dollars to his name!

  11. plonkee says:

    Hmmm. I’m thinking of using these to buy some furniture that I already have the cash for. How savvy do I need to be to get it to work in my favour? If its too much hassle, I’ll probably just pay cash, but otherwise I could make a few bob by keeping the money in savings.

  12. Trent Hamm Trent says:

    Quagh: that’s exactly the point. We were under the belief that “same as cash” meant “the portion you can pay off before this time is interest-free.” Our bills came with a minimum payment that was very small – too small to be paid off before the end of the “same as cash” period.

  13. Ross says:

    Free financing is a great opportunity. But you must pay them off before you incur the interst expense.

    As one other commenter noted you can put the money in an account and earn interest. Or, even if you don’t do that, why not let the company take the hit of the inflation, you’ve paid for the $100 (or whatever) item over 12 (or whatever) months, at the end of 12 months that $100 is worth less than it was at the beginning of that 12 months.

    Besides, if you’re responsible you have the opportunity to purchase something with out taking all the time to save up front, and besides as part of the instant gratification generation who isn’t all for that!

  14. Greg says:

    Quagh didn’t say how much a month you would have to pay a month to pay off the $5,000.00 balance in a 12 month period. So here it is: to pay off the $5,000.00 in a 12 month period you have to pay $416.66 a month. That will actually leave you .01 short, so one payment would have to be $416.67. If you do that there’s no way they, whoever they might be, can legally add any additional finance charges to your bill. Because, you have paid the balance off in the 12 months, same as cash time period.

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