Many stores, especially furniture and electronic, are known for advertising their in-store financing options that allow you to buy goods at "90 days same as cash," or with interest-free or no payments until a later date. At first glance, many of these deals seem useful, but they're often not as good as advertised and leave vulnerable consumers in bad financial positions.
How It Works
When the store promises 90 days same as cash, they're guaranteeing you no interest payments for 90 days, as would be the case had you purchased the item in full with cash. It may appear like there's no reason not to take the offer; you get to walk away with your merchandise and a promise to pay back the money over the next few months — a seemingly win-win situation.
In a perfect world, you'd be able to finance the purchase, pay off the balance in 90 days and never pay a cent in interest. For a lot of people, however, that's not the case. Without taking a close look at your finances, you may assume you can afford to pay off the balance within 90 days. Unfortunately, it doesn't always work out that way. More likely than not, you may not be able to pay the balance within 90 days and you'll end up paying interest on the purchase. Companies know this, which is why they're so adamant about offering the deal to consumers.
If you were able to pay off the purchase in 90 days, you'd be able to save up and make the purchase in three months, avoiding the gimmick altogether.
Losing Your Interest-Free Days
You may be tempted to rationalize that it's okay if you don't pay off the balance in 90 days; you'll just pay as much as you can and after that, you'll deal with the interest. Here's the catch, though: The 90 days same as cash finances is a type of deferred-interest financing arrangement that only works for your benefit if you pay off the balance in 90 days.
If your balance isn't paid in full in 90 days, the interest is backdated to the date of the purchase and added to your balance. You only get 90 interest-free days if you pay the balance in full during that time. Otherwise, you haven't gotten the interest-free benefit at all.
For example, assume you 90-day finance a purchase for $5,000. If you pay off the full $5,000 in 90 days, you won't be charged interest. However, if you only pay $4,500 during those 90 days, interest will be applied to the full $5,000, not just the $500 remaining.
Saving is Cheaper Than Financing
If you can't afford to pay for the purchase in full by the due date, you can't afford to finance it. The best option is to save up for large purchases, so you don't have to worry about paying it back later. Instead of making a purchase and hoping to pay it off in 90 days, use those 90 days to help you save. Not only can this help develop good saving habits, but you may also find that you don't want the item(s) as much as you initially thought.
Even putting the purchase on a credit card is better than 90 days financing deal, especially if you qualify for a credit card with a 0% introductory rate on purchases. You'll have much more time to pay off your balance and even if you don't, interest would kick in after the promotional period ends. It's not backdated to the date of the purchase as it is with 90 days same as cash financing.
The Bottom Line
Companies offer these deals to encourage consumers to make purchases they'd otherwise avoid due to financial constraints. Still, they're very aware that many people will not pay off their balances and owe interest. It's essentially working as additional income for many businesses.
If you're worried about falling down a rabbit hole of interest and debt, follow this simple rule: If you can't afford it in cash, you can't afford it.