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”
Pages: « 10 9 8 7 6 5 4 3 [2] 1 » Show All
Pages: « 10 9 8 7 6 5 4 3 [2] 1 » Show All
May 10th, 2007 at 7:30 pm
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”.
May 10th, 2007 at 3:42 pm
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.
May 10th, 2007 at 2:35 pm
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.
May 10th, 2007 at 1:55 pm
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…
May 10th, 2007 at 12:45 pm
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