Hi Salve. Does this mean DTI A.O. 10 applies only to price tags? If a store declares a separate cash and card price, they can still get away with it? When they offer a “discount” for cash payments, that is still allowed by law?

yup, the interest’s already in there alright. that’s primarily the reason why i paid my printer in cash.

on a side, gadgets are the worst things you can throw your money at because technology changes so fast that today’s state of the art candy would be wrting its obituary in a couple of years at best. it maybe one good reason, (apart from being “in” among free spenders,) for the 0% thingie.

so before getting something, ask yourself a lot of times if you ever really need the eye candy.

hi salve,

i constantly read money smarts and i think it’s about time filipinos were more proactive in saving and looking for ways to save.

regarding this article, i did compute the monthly charge *12 = SRP. Does it mean that if you pay in cash they will give you a bigger discount? i computed the figures you gave and it means approximately a 7.5% discount.

i think this is good if one has the cash but if one doesn’t then it is still a deal. but why not use one’s old digital camera as long as it is still functional? or buy a cheaper one if photography is really just for kicks and not one’s occupation.

sometimes pinoys are stuck in the “wanna, wanna, wanna” mode and neglect to look at the long term. not that i don’t fall victim to this mentality sometimes.

sorry, off my soapbox now.

gawd thanks for this info. my mom should know about this grabe…. but sana nga you have a more identifiable source kasi knowing my mom she;d just shrug this off or something lang

It’s easy to see the catch in zero interest. Just ask the cash price. What is not so easy to see is the catch in add-on interest. Banks and financing companies use add-on interest to make it appear that their interest rate is low. Borrowers like it bec. it’s easier to compute monthly amortization. But do you know that you’re actually paying almost double the interest rate if your loan is one year or longer. A 10% add-on is equivalent to almost 20% using diminishing balance computation.

So whenever you’re quoted an interest rate, always ask “is it add-on?”

oh, it’s really funny, I even had an experience that an assistant of a well known fitness gym told me that the 6 months cost of training in the gym is 6K cash or if I want, 0% interest in my credit card for 7.2K. Gosh, I’m wondering if this sales clerk is thinking. :-p

Well should I say, but there are really those that are true 0% that offers both the cash price and the card price for this same amount. I just don’t know if they change the tag value of the item from previous week before the promo has been lifted

Yup, “0% interest” is just a marketing crap. It is actually a ploy to entice people to buy on credit. With the monthly amortization computed with interest included. There are no stupid businessman out there who would sell his products or services on credit without any interest. They just found a way to hide it and it actually an example of “Un-Truth in Advertising” and mind you there are many many people who falls for this gimmick…

You can actually reverse the computation of your discount if you like to pay in cash and insist on that cash discount if not equal to the % interest of credit. Say, the interest you computed is 12% on credit as your example above, the cash discount should also be 12% right? or Php 5820 and not Php 3550.
A good seller would agree to this , because they can sell the item right away with profits already computed than wait for 12 months for a 12%interest…sad to say there are many greedy sellers out there who gives low discounts when paid in cash…

I don’t get how u arrive at 12%. My computation is close to g - 7.9%.
Credit cards are also helpful in a way. let’s say you’re abroad and you want to buy a laptop. and you run out of dollars. credit card will save the day for you. just pay it immediately when you return home.

0% interest free is a good marketing strategy to attract credit card holders to purchase something. i can say its very effective.

lesson is.. marketing promotion always has a catch.. so think & annalyze first before giving in to its catchy words.

Simply put it this way. When you purchase an item on credit, vendor collects from the credit card company full payment. Cost of money is passed on to the you as cardholder. “Zero interest” is, you’re correct, a sales marketing tool for the public to buy on credit. Credit card companies flourish simply because they’re making money. That’s their business.

Clearly, before you flash that gold card of yours, ask yourself, “is it a need”? Or just “a want”.

Hey guys, that’s another “fooler”…kala kasi ng marami, interest rate is simply computed that way… which in this case, some of you said was 7.9%, as in (48,500 – 44,950) / 44,950. When you use a financial calculator or use the excel financial functions in your PC or PDA, you’d get 1.19% per month or 14.3% p.a. (based on monthly compounding).

Incidentally, it can now be noted that investment math or a know-how on time value of money should not be expected only from your financial planner or related professionals, but would also be a big plus factor for our consumers if they take time to learn it. It worth it naman coz it has many, many uses…and it really ain’t that difficult. You can even learn it thru self-study using excel coz you just fill-in the values.

For this ex, just click “Insert” “Function”, then choose “Rate”. Fill in the values accordingly, 12 for “Nper”, -4042 for “Pmt”, 44950 for “PV”, and 0 for “FV”. Ganun lang, and you’ll get 14.3% (rounded-off ) for your “Rate”.

hmm. If the 0% price already includes the tax for the year or so. I usually make full payments to my credit card so does this mean i still paid for the 12% or so tax even if i paid it immediately?

Makes you wonder.

this is indeed true! try nyong gawin and you will find out that it is not actually “0% interest”. i myself always make it a habit to ask for the cash price to check if i am getting a good deal.

Fair Enough!

“Add-on” interest disguised as 0% interest is the business peoples’ cover of oppurtunity cost for his money. Consumers who buys the item spread over several months to pay finds the item very affordable and can still find other use of his money( either deposited to earn interest or spent on other items). Thus, it is a win-win situation. Again, the bottomline to ask before buying should be..” Is it a NEED or a WANT?”

The point is if you don’t have the cash, don’t buy it. Charge it only if you have the money to pay when the billing arrives afterwards. And DO NOT own a credit card if you don’t know how to handle your finances. And most importantly, live within your means.

Well, its a matter of anybody’s choice… Just be wise and practical…

just a thought. isn’t DTI AO 10 counterproductive. Since an establishment is not allowed to post separate price tags for cash and card purchases, what they will do most probably is post the higher price (i.e. card price). Won’t this be “penalizing” the cash buyers?

I know that the intention of the directive is for the benefit of card users. But realistically, what I would do if I’m the businessman and pad up my price. Techincially, I am following the rules but the directive just made the cash buyers suffer.

Of course, there might be some provisions in the AO answering this that I’m not aware of.

nailbiter, good question. thats what the AO says. I will have to check with the DTI again on that. Will surely let MoneySmarts readers know about it. thanks for pointing this out!

qwerty, i agree with you about gadgets. I bought my Canon G6 for 45,000 one and a half years ago. Now that money can already buy a 400D, imagine that. Awww.

hi g, ria: just tell them you don’t want to use your credit card and ask them if they have a discount for cash payment. ria, your mom can validate this in the stores, its so easy.

i like that “wanna, wanna, wanna” mode hehe.

hi john, just follow Angie’s computation =). she explains it so much better than I can! if you dont have a financial calculator, just use excel.

JD, yes even if you pay in full because the interest is already imputed in the card price.

hi lemini, youre right. but other people might be encouraged to pay in card, after all 0% interest naman eh, right? you pay in full every month, thinking you havent paid interest, when the truth is, the interest has already been included in the total price of the item.

lanie, you’re right. it really is a matter of choice. thats why informed consumers are smarter consumers. I hope!

flexy, thats what a lot of finance professionals also think. I will get the full text of the AO for you guys so you can judge for yourselves.

hi angie, thanks for all your comments. a lot of our readers are learning from you.

This is very true. I look at laptops and often ask how much it will cost if I pay in cash. It’s lower. And they are even willing to throw some freebies like a USB disk or a laptop bag. It’s always good to ask. And sometimes different agents give you different prices/freebies even if they are working on the same store.

the guy who falls for the 0% come on is a brainless dolt. period. it’s like rushing into a department store because it’s having a 60% slash down on prices.
Yeah, right.

I asked a friend who owns an electronics store and found out that you can actually file with DTI for a “special cash price promotion” allowing a store to give discounts for cash buyers.

added info. found this provision of DAO 10. from the DTI website.

“When the retailer offers the consumer an option to pay in cash, card or on installment, the same is allowed provided the payment options shall be disclosed by way of a separate information to the consumer but not in the price tag.”

so the concern is just “not to have two price tags”

on sales, there are actually some sales which are selling below their cost. It may not make sense but the rationale for this is opportunity cost. Instead of holding on too very old inventory (and incur warehouse cost), better if I can just turn the “asset” into “cash” so I can turn it into a more profitable opportunity (i.e. new stock, new model, etc.)

Although the markup of some stores ranges from 70% to 40%. So even a 60% sale would still give them some profits. So it really depends.

hi flexy again, re: cash price promotion and DAO 10. thanks for taking the time to do this for MoneySmarts :-). so its clear the admin order is just on price tags and these stores are not breaking any rules. consumers just have to be a lot smarter when shopping!

i would say the same thing when buying during “sale” season. I agree with you that some sales are legitimate marked down prices, some are not. this goes back to the NEED vs. WANT rule. Certainly, the best way would be to take advantage of discounts and sales IF THE NEED warrants the purchase. Tama ba?

Also, isnt funny how prices can vary greatly even if the shops are a stone’s throw away from each other? take the time to compare prices, you guys

you hit it right on the bucket!!

Hi Salve. yup…seems to be just “superficial”. They may be betting that the merchants would lower the price (i.e make the “card” price close to the “cash” price) in the light of competition. But I doubt if that will be true for all. From the perspective of a merchant, they incur higher costs if their customers use credit cards (because credit cards charge fees).

I think it’s just common sense…how can credit card companies make money with a 0% interest campaign if they do not charge the merchants? = )

On the sale, I couldn’t agree with you more. even if an item is on 95% sale BUT you don’t need it, you actually did not “save” but instead spent on something outside of your budget. = )

just an additional insight…assuming that DTI will impose in the future that shops cannot offer a special cash price…what would happen is that they will just impute the surcharge to the SRP (I don’t think that shops will abosrb the surcharge and cut their profit. They need to make money too)…effectively, this would increase the prices.

.
Therefore:
1. For card users, I guess this is okay since this is the price that they would have paid in the first place with or without DAO 10.

2. But for people without credit cards (no choice but to pay in cash), they are paying the credit card surcharge without benefiting from it. so the law just created “instant inflation” for them.

The way I see it, DAO 10 intends to protect the interest of the consumer but is actually protecting the credit card companies.

Note: I have nothing against credit card companies. Just think that there needs to be free-flowing information so that users understand their options

Salve, Pinoy Investor,

Can you explain more about add-on interest? I see this word a lot but don’t exactly know how it works or what it is…thanks in advance.

hi omski, if I may (I’ve been asked this before as well =)…

add-on interest is interest applied to the begining/principal of a loan (or any series of payments) then divided by the number of period.

Example, I lent you P120, then I ask for an add-on interest of 10% p.a. That means that you should pay me P12 in interest after 1 year. So if we compute for the amortization (using equal installments every month). On the principal, you should pay me P10 (P120/12months) every month and P1 in interest (P12/12 months). That’s an amortization of P11 every month (P10 prinicipal + P1 interest).

It may seem logical but an equitable computation should be a “diminishing principal” approach. Meaning, the interest on the second month’s payment should have been lower (not P120) becuase you already returned a portion of the loan. Following the simple example, the balance of the loan is now only P110 instead of P120. In effect, your interest should be lower.

I hope this helps. = )

hi omski, pinoy investor is right. Add-on interest rates are not as low as they seem. This type of interest is computed on the total amount you owe and does not go down even if you are paying down the debt and even if you pay early. Credit card companies have their own computations.

Overall, add-on rates are still lower than the usual 42% per annum BUT are not much lower than that. Click here to see an example of computation from HSBC:
http://www.hsbc.com.ph/ph/btnu/btnu.htm

hi flexy, some pretty good insights you got there. I totally agree. Unfortunately, the DTI is bound to the DAO unless someone or a group of people formally make a complaint. I hope people take the time to do that.

flexi, salve,

thanks for your input about add-on interest, got it now…it is common advertisements on credit card companies offering to transfer your loans to them, but i think not a lot of people really knows how it works and maybe a come on like 0% interest as well…the diminishing balance computation is much better option , but it is easier to compute amortization on add on interest.

Omski, flexy— That’s why as I have mentioned in my post above (dated May10) that it wud be good if consumers learn basic investment math or time value of money functions.

Using the same excel function I illustrated above, you will be able to compute that the effective interest rate is actually 18% p.a. which is being masked by a low 10% add-on rate.

PS–

Simple investment math or time value of money are taught in some books on consumer math available in Nat’l Book Store. Also in basic finance & acctg books. I know investment math books are available for as low as P175.

In the table of contents, look for topics on time value of money, Present value, Future value, nominal & effective interest rates, amortization, etc.

Thanks for the tip AngieV, really appreciate it.

agree with AngieV on learning basic investment math. One will have a better appreciation of handling money when you have a good grasp of these concepts.

Before MS Excel, it was difficult to compute for certain values. Now, it takes a lot, lot less time. (only donwside is that most people don’t know how to manually compute anymore! haha = )

passed by the mall yesterday. just wanted to check for myself the recent practice of 0% promos.

Here’s what I gathered:
1. some still offer a special cash price but they don’t put it in the price tag
2. some offer the same price for cash and 0% price BUT cash buyers get a lot of free items (worth around 5 to 6% of the item price)

although, there really are some shops who already impute the surcharge to the price. (normally, shops belonging to industires that are not competing in price)
I actually had a discussion with a friend buying a digicam insisting on the 0% deal beacuse this particular store had the same price for cash and 0% installment (greedy store! my friend’s mindset is that all the stores are the same)…I told him to look for another shop that gives an option to pay for cash purchases at a lower price! = )

Gusto nyo magtipid… punta kayo Hidalgo for digital cameras, and stuff. Loko lang ang bumibili sa mall! Geez

hey luohan, are you talking of quiapo area? I have been wanting to go there for ages but im worried I will get fake stuff. someday, i want to feature cheap places to buy expensive stuff. =)

salve - yes, hidalgo is the “digcam place in the Quiapo area”. = ) there are reputable shops there like Henry, Mayer’s and they sell the real deal. price is way cheaper than mall prices.

i agree with the comments on DAO 10…i was in the mall on the day before DAO 10 was implemented. im looking for an appliance that i need and going around to see the best deal in the appliances store of the mall… then i noticed that some of the sales person are removing price tags and then they are erasing the the cash price… what was left was the card price… chat with one of them and asked what they were doing and told me they are complying with DTI regulations of only price per item… learned that the price will be effective the next day and if i will still buy in cash that day, i can still avail of the cash price…so what happen was i did bought the appliance that day because if I do it some other item, i will likely pay for it on its card price…
reflecting about what happen, i feel that DAO 10 is anti consumer especially for me because i dont like to use credit cards….

Yes. Hidalgo’s in Quiapo. Stores there offer 1 yr warranty. If you want less hassle, some are also selling in ebay.ph, around 2k difference, still way cheaper than those in the malls.

For apple and palm products, there’s another seller who sells them close to the SRP, and with original Apple receipt honored by Apple center here.

I got my digicam from quiapo, with a 1 year warranty, mas mura ng mga 7k sa malls, sana may ganung supplier din para sa HDTV, lower price compared sa mall pero with warranty

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well, isn’t obvious? the bank needs to make money too. normally, they charge the shop 3.5% for straight payment, 6% for six months zero, and 12% for twelve for deferred or zero percent.

if you have cash, always ask for a cash price. however, there are some items that are really have zero percent. meaning its not the retailer who would shoulder the interest but rather the vendor of the product.