You may see “same as cash offers” for all sorts of things. Furniture, appliances, cars, home improvements, etc.

What does “Same as Cash” mean and how do interest free offers work?

Phrases like these typically mean that you have an X amount of time to pay a debt interest free. Sounds great right? Well, it can be as long as you use the terms of the deal to your advantage.

Real Life Example how do interest free offers work

You need (ok, maybe want) new furniture as you have an awesome new apartment or house and a hodge podge of furniture that’s seen better days. You know your budget and what your monthly expenses are so you go out and buy $1,000 worth of furniture on a six months same as cash, interest free offer.

It’s true that in the agreement that you signed with the store, you have six months interest free to pay off that $1,000 debt. $1,000/6 = $166.66 per month. It makes your purchase sound more affordable and less stressful on your budget.

As long as you follow the terms, it may very well be a winning situation for yourself, your budget AND your new place to live. However, what happens in month seven with the balance?

That interest that you haven’t been paying has been accumulating since day one and is now placed into the debt balance…. on the entire $1,000 amount. This interest amount can range anywhere from 15-30%.

In this scenario, let’s say the interest rate is 19% and you’ve only paid $575 out of the $1,000 balance leaving $425 still owed.

For the first six months, that’s about $190.00 of interest that you haven’t been paying that is now due as part of the purchase balance.

Principal Amount                     $425.00
+ First six months interest $190.00
    Grand Total                           $615.00

Interest is now increasing on top of that every month that you carry a balance.

You’re now probably hyperventilating as the cost of your $1,000 furniture has exploded.

What happens if you miss a monthly payment or late on a payment, even by one day?

You’ve just lost your six month interest-free grace period and the interest accumulated is now added to the balance and will continue to grow until the balance is paid off.

How do you take advantage of same as cash, interest free offers?

  1. Think about your purchase and the amount of money you’re intending to spend. Same as Cash offers are marketing ploys to get customers to spend more money on a purchase without realizing it. It’s also a gamble that the store and the financing company is taking to earn more money in the long-run with the interest that comes after the same as cash, interest free terms of the agreement.
  2. Think about the purchase like it’s a temporary loan that matures within the terms of the same as cash offer. Make it a priority to pay off the “loan” on or before the maturity date.
  3. Do the math. It’s simple math. Divide the purchase cost with the duration of the interest free offer to obtain a monthly payment. Can you afford these monthly payments you’ve set for yourself within the same as cash period? If not, rethink your purchase. Either buy less expensive furniture or keep saving until you can afford what you really want.
  4. Instead of dividing the amount out evenly throughout the same as cash period, try to pay as much as you can so the balance can be paid off well before the same as cash period ends. This way, if financial troubles arise at any point, the burden of the outstanding balance before the deadline is minimized.
  5. Read the fine print and ask questions about anything you don’t understand. Yes, it’s a lot of text and yes, it’s confusing vocabulary but ask questions. The salesperson or a manager should be able to answer any questions that you have and help you understand the terms and conditions that you are agreeing to. If they can’t or you don’t like the answers they provide, you may want to shop elsewhere.

For more information on how interest free offers work, our blog “An Awesome Way to Save Money on Credit Card Purchases” breaks down exactly how interest works and just how badly it can cause a disruption in your budget and attempts at saving money.