Be Wary of Enticing Advertisements for Low Payments
Posted on May 9, 2008
Have you noticed the number of ads for cars, RVs, furniture, appliances and other big ticket items that no longer promote the price, only the payment amount? In recent weeks I have seen television programs by several car dealers that never once told you how much the vehicles cost.
The programs often have one or two attractive smiling young ladies giving out payment amounts while some gruff looking salesman is waving car after car into the picture then motioning it to drive away so the next one can be displayed. A few of the ads use celebrities instead of attractive females, but the message is the same, “Buy this car now and you’ll only pay $XX per month.” Whatever your comfort level, there’s a payment to fit your budget�if you even have one. Some even offer small weekly payment options.
Oh, don’t forget the low interest rates being offered and all those cash back opportunities. Speaking of cash back, I still have trouble understanding how it’s a deal to be overcharged and then get some of your money back. But what really get me are the ones with the option to take a low or zero percent interest or get cash back if you don’t. In these deals, isn’t the interest just built into the purchase price? If you don’t finance, the money you get back is the interest you won’t be paying.
Furniture and appliance dealers are just as bad with their buy now, pay later promotions. FREE financing! No down payment and no interest for two years, maybe more. Some offer no payments and no interest for months or years. Many of these special offers are coupled with a requirement to open a new credit card account. What is going on? Why all the advertising to entice customers to go in debt?
These offers seem too good to be true until you read the fine print and learn that most of them are lender’s gambling that consumers will lack the discipline to follow their strict guidelines. The consequence of a misstep may be penalties, late fees and interest rates of 25 percent or more. Unfortunately for buyers, these gambles pay off far more frequently than not. America has become such a society of debtors that people don’t even bother to ask the price anymore if the payments can be structured to make buying seem easy.
With public schools failing miserably when it comes to teaching students about money management and consumer finance, it’s no wonder that today’s young people are such easy prey for all these credit gimmicks. I grew up before the age of credit cards and easy financing. If we didn’t have the cash to buy something, we had to save for it.
An option many merchants offered was lay-a-way. It let you select items to purchase, laid them aside and allowed you to make payments until the purchase was paid in full. Although this was a form of forced savings, it wasn’t all bad. Instead of getting the product now and being charged interest while you paid for it, if you couldn’t pay as agreed on your lay-a-way, the items went back into inventory and your money was refunded minus a fee for handling the transaction. It taught people to be patient and kept them from buying things they couldn’t afford. Even more importantly, it taught discipline. You paid on a lay-a-way because you wanted to, not because you had to.
Current high fuel prices, stagnant real estate sales and tighter credit are dragging the country ever closer to being in a recession. These tougher times could be the biggest contributing factors to why we are seeing all these payment ads that don’t tell the price. When money is tight, a car payment of $299 per month sure looks better than a price of over $21,000, even though you might have to make the payments for seven long years. No money down and no payments for a year might look good today for that new high definition television, but unless you can come up with the full amount when it comes due, you could be facing a huge interest rate when you can least afford it.
Here’s a tip! When money is tight there are very few things in life you can’t live without. Tough times require tough decisions and one of the toughest is to reject easy credit to buy things you don’t really need. The joy that comes with a new purchase fades rapidly as the agony of making payment after payment drags on for years. When the urge to go in debt hits, step back and let common sense dictate action. That’s like saying don’t jump off the diving board without first checking to see if there’s water in the pool.
Be patient! Try out the payments initially by making them to a special bank account to see if you can comfortably handle them. If you find they are a burden, you’re not locked into a debt that may ruin your credit and cause you much anguish. See if you have the discipline to give up other things in order to finance a purchase you may not need.
The economy is very unsettled right now. That’s another reason we’re seeing so many opportunities to buy on credit. Most people aren’t flush with cash and times are going to get tougher before they get better. So, keep in mind the words of my friend Dr. Robert Schuler, “Tough times never last, but tough people do.” Be tough! Don’t get sucked into a situation you may regret. If you save first and buy later instead of buying now and paying later, you’ll avoid a lot of problems.
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