A finance professional last week told me he had a great tip for MoneySmarts. He said the 0% interest rate promotions are a sham. Yep — a clever cover up, a daring deception, a trap for the millions of unsuspecting shoppers in this great big mall of a country.
Unfortunately, he declined to be identified, but he was willing to explain all the details. So MoneySmarts went money myth busting to find out if his claims were for real.
Hot glue gun stuck to the end of my nose! I was surprised how easy it is to make money in this country. Here is what I found.
If you are like me, you go shopping at least once a week. Or at least go window shopping. You find that as you browse the shop windows, your eyes constantly stray to digital cameras (the hot craze right now), laptops (I especially like the razor-thin ones because I’m hardly 5 feet tall and lugging around more than two kilos of computer equipment is not my idea of a good day), plasma television and aircondition units because of this terrible summer heat.
These are by no means cheap items. But hey! There’s a 0% interest installment promo and all my three credit cards are accepted!
Now, here’s the deal. Swiping a credit card removes the pain of having to fork over a huge amount of money and it is very convenient. But we have been told hundreds of times not to use the credit card just to look good because the interest will kill us. Well this time, there’s no interest to pay. So why not jump at the chance, right? Sounds like a great deal.
Wrong.
The Canon 400D camera cost P48,500. Its interest free if you pay for 12 months. The monthly payment is P4,042. Cut down to monthly bite-sized pieces, it doesn’t look too painful. Then I asked the clerk, “What if I don’t want to pay by credit card? I want to pay in cash.”
“Mam, its P44,950 if you want to pay in cash,” she says.
Technically, there’s no violation of Administrative Order 10 issued by the Department of Trade and Industry, which put a stop to the practice of putting a card price and cash price in one price tag. But if you pester the clerk in a nice manner, he will tell you that he can give you a discount if you will pay in cash.
So, is the 0% interest for real? MoneySmarts concludes the nice round “oh” is just a figure, often in red, to catch people’s attention. The interest has been included in the price already. If I pay P4,042 a month for that Canon 400D, I will be paying 12% interest on this installment promo and not 0%. If I pay in cash, I would save P3,550 – that’s almost 2 gigabytes of additional memory for the camera.
If your aircondition unit at home is up for replacement, then go for the deal because the 12% interest is much less than the regular 42%. But don’t let the deciding factor be the attractive “0%” deal, because it ain’t what most people think it is.
50 Responses to “The truth behind 0% interest promos”
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Pages: « 10 9 8 7 6 5 4 3 2 [1] Show All
May 10th, 2007 at 10:43 am
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?”
May 10th, 2007 at 10:16 am
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
May 10th, 2007 at 9:55 am
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.
May 10th, 2007 at 9:44 am
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.
May 10th, 2007 at 9:25 am
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?