The Buy Now, Pay Later Trap

Don’t you love those commercials that advertise no payments for two years on purchases made today? They sound like a good deal, but beware. You could be setting yourself up for trouble down the road.

No one wants to window shop forever. You see something that you wish you had and there’s a sign hanging saying no payments until 2009. What could be better? You sit down and sign a contract. Two years later you find out that the price you thought you were paying has in fact doubled.

During the time that you are enjoying your purchase payment free, the interest is accruing on the items. Depending on the cost of the item (most likely a furniture or appliance purchase) this could add up to a lot of money. Some contracts specify that it has to be a purchase over a certain amount in order to qualify for the special offer and that amount isn’t normally cheap.

Did you read the contract? The interest rate that is accruing can be phenomenal. Think about a 23% interest rate on your purchase accruing monthly. That’s not so great a deal after all, is it?

Consumers that do not read the fine print can find themselves in a bind. They think that after two years they start making payments and all is well. For one thing, most people don’t try to put aside some money for the payment each month. The payment is forgotten until the first bill arrives.

The first bill can be a shocker. There is the high interest rate and the amount of the accrued interest added to the bill. Did I forget to tell you? More often than not, if the purchaser does not make a payment in full when the two years are up, the interest is tacked on to the purchase price. Surprise! You now have a bill that is substantially more than it was in the beginning.

When used wisely, buying now and paying later can work. People, who are trying to build credit, can start by purchasing items like furniture or appliances and paying on time. You will still need to make a lump payment to avoid paying the interest. Better still is forgoing the special deal and making payments each month from the beginning. In two years, the furniture will be paid off and you will have established a good payment record to boost your credit.