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 15th, 2007 at 4:20 pm
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. = )
May 15th, 2007 at 4:12 pm
you hit it right on the bucket!!
May 15th, 2007 at 2:14 pm
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
May 15th, 2007 at 1:28 pm
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.
May 15th, 2007 at 11:54 am
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”