'No interest no payment' deals

One of the most ubiquitous sales promotions you'll see in the US is the 'no interest no payment' offer. When you buy a product under such an offer, you neither have to make a minimum payment nor accrue interest for a given period, usually 3, 6 or 12 months. Effectively, you are receiving an interest-free loan with no down payment from the seller. Only after the defined period expires does the full payment become due.

No interest no payment offers are usually extended by retailers to entice people to buy big ticket items like furniture or cars. The 'loan' eases cash flow for the consumer and makes him more amenable to the purchase, since he can spread out payments over a longer time without paying interest.

Here are some reader tips to keep in mind when buying household goods on such terms:

1. Almost all 'no interest' offers are literally a loan from the seller to the buyer, and consequently require a credit check (you will have to provide your social security number). Therefore, take up the offer only if you are willing to add another credit line and can afford a credit check - remember, too many credit enquiries in a short span of time impact credit history adversely.


2. The offers are extended only to people with good credit scores - usually 680+. If you know you don't have a good score, don't apply - chances are you won't get the best terms anyway.


3. Be aware of the difference between 'no interest' and 'no interest no payment' offers. In the former case, you won't accrue interest for the defined period, but might still be required to make minimum principal payments every month. For instance, I bought a home theatre system under a 6 months no interest plan. But I was yet required to post a minimum $10 payment every month, failing which additional finance charges would have been levied.


4. Use the free interest period to pay off the full purchase price. For instance, if you buy a product worth $120 under a 6 months plan, pay off say $20 every month. Or pay $40 every 2 months. If you keep any amount outstanding by the time the offer period expires, significant finance charges become payable as accrued from the original date of purchase.


5. Do not use these offers for lesser priced items. Use them only where the purchase price is high enough to disrupt your monthly budget, if paid all at once. I would recommend $1000 as the minimum threshold for considering such offers.


6. Many of our readers have recommended setting up automatic monthly internet payments in advance as a good strategy for closing the loan within the deal period. Otherwise you have to remember paying a partial amount each month. If you forget, the amount adds up and defeats the purpose of spreading out payments. Furthermore, if any amount is inadvertently left outstanding at the end of the offer period, considerable finance charges could result.

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