No payments until 2008 and no interest until 2011

The furniture stores in our area are one-upping each other on easy financing terms. One offered “no interest until 2009.” Another offered “no interest until 2011.” Still another offered “no interest until 2011 and no payments until 2008.” It's crazy!

Nearly a full year without any payments, and nearly four years to pay off the purchase as if you had bought it with cash. I can see why these promotions are so appealing. You get to enjoy the dining room set, couch, whatever, for a fairly long time without taking the financial hit for it.

Of course, there's always the fine print and the subtleties:

The interest clock is ticking from day one, even if you don't hear it. The interest charges accrue on the unpaid balance just like any other line of credit, even if they're never posted to your balance. If you're taking advantage of the no-payments-till-2008 option, interest accrues on the entire balance.
The interest rates are typically very high. As in default rates (around 20%). If they're not going to collect interest from some disciplined people, they'll make it up by collecting more from the undisciplined ones.
They may not remind you to pay. Really! Some merchants won't send you a monthly statement. You're on your own, buddy!
Bad things happen if you screw up the payments. If you miss a payment or don't pay the minimum due, all of that accrued interest rears its ugly head, and you lose. Plus they may jack up the rate on you. It's all in the fine print!
“Oh, you wanted your entire payment to go toward that?” If the line of credit can be used for other purchases — for example, the store issues you a branded Visa® — then there may be some complicated formula for determining how much of your combined payment on the card (payments toward the deferred interest portion and toward the regular interest portion) goes toward that big purchase. If it isn't enough to cover the minimum payment, you lose.

The Digital Federal Credit Union has a nice write up that elaborates on some of these points.

If getting into debt is like digging a hole for yourself, then waking up on the wrong side of one of these “no-interest, no-payment” deals is like having the earth opening up and swallowing you whole when you knew you were standing on a fault line the whole time. The face of these deals looks like a reprieve from payments and the ability to splurge a little, but it's bad news unless you really, really know what you're doing and unless you're really organized. So if you already are making consumer debt payments, I'd stay away from these. Actually, I'd stay away from them anyway, because the kinds of goods you buy with no-interest no-payment deals are usually brand new and full retail price. Buying used is a good choice for a lot of things.

7 thoughts on “No payments until 2008 and no interest until 2011”

Another big gotcha: When it's a line of credit (like a store credit card), the fine print almost always indicates that lower interest balances are paid off before high-interest ones. So, if you charge ANYTHING to that card aside from your zero-interest purchase, then every dime you pay to that credit card goes to paying off the zero-interest part, and you pay interest on the subsequent purchases the entire time you're paying off the 'interest-free' balance. In other words, if you take advantage of one of these deals, NEVER charge anything else on that card until the balance is paid off.

Too bad we can't leverage their offer of free money by buying furniture and reselling it. We could drop the money in an HSBC account to earn 6% interest for a few years.

I think the sales tax would really eat into the profits. Plus my wife would kill me if I filled up the garage with furniture I was trying to sell.

I think if used properly they can be a great tool. When I purchased my house 2 1/2 years ago I didn't have the cash at the moment to purchase a washer and dryer so I did a no payments/no interest thing with Home Depot. Over the next year I deposited money into a saving account and a few weeks(just in case the check got lost in the mail) before all of the interest was coming due I sent them the payment for the full amount. I have done it a few other times to purchase items that I was going to buy anyways. It is similar to having a credit card with rewards, when used properly (paying it off before interest is applied) can be a great tool.

If you do choose to participate in one of these plans, pay it off several weeks early, and confirm that it's paid off. We bought a gym machine on one of these plans, and the billing address actually changed in the "no payment" period! Fortunately, we did pay several weeks in advance and got everything straightened out before the extra 40% accumulated interest kicked in.

Ya never charge two things on these deals.

What store is it though that advertised "no interest until 2011 and no payments until 2008"? I have been trying to find it. I'm looking to buy my wife a bed for christmas and time is running out on me.

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