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 11th, 2007 at 10:11 am
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.
May 11th, 2007 at 5:51 am
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?”
May 11th, 2007 at 5:06 am
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.
May 11th, 2007 at 2:46 am
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.
May 10th, 2007 at 10:09 pm
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”.