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Matt Chancey's Blog > When Even the Seemingly Best Financing Option Is a Bad Idea

When Even the Seemingly Best Financing Option Is a Bad Idea

12/19/2017 1:23:30 PM by Morgan Wendlandt Edited for Matt Chancey Leave a Comment
We are approaching the season of cheer, and the season and spending, oftentimes, on ourselves as well as others. This means that, for many people, this is the season for financing. Now we all know the dangers of credit card debt, and the high interest rates that can quickly make payments become unmanageable. But what about the good kind of financing? The financing terms with all of the zeros: 0 down, 0 interest for 36 months, 0 due at signing, etc? Well despite the sound of the zeros, there is very seldom such a thing as a free lunch, rather there are often hidden dangers in these financing agreements. There are a few different purchases that have notably dangerous terms and risks.


When you need to buy new appliances, because the washer stopped working or you woke up to find everything in the refrigerator was room temperature, you may be enticed by your local store's no-interest financing. That means buying appliances and, as long as you pay them off by the end of the interest-free period, the only cost will be the actual, original price of those appliances. Or at least that is how it is supposed to work. But anyone who chooses this option, needs to be very careful. There are a couple of problems with this.

First, many of these interest-free contracts come bundled with a lot of fees and costs. That means the price of the appliance can still go up a lot, even if there is no interest charged on it at all. Second, everything must be paid off by the end of the interest-free term. That is generally one year, but not always. Be sure you know when the period ends, and be sure that every penny of the total amount is paid off before that date. If not, you will usually be charged interest on the entire purchase price, all the way back to the day you bought it. That can really add up, especially on expensive appliances.


If you finance furniture on your credit card you'll pay a lot of interest, unless you pay if off right away. You can choose in-store financing, but it has the problems that were already addressed in the section on appliances. However, there is another option. You can choose to get furniture through a rent-to-own store. These can offer some nice-looking pieces of furniture, a number of which are actually decent quality. Problems arise, though, because of the processing fees and other costs that appear with these types of contracts. By the time all of the fees are added on, the cost of the furniture is much higher than it needs to be.

In addition, the original price of the furniture from a rent-to-own store is higher than it would be from a more standard furniture store. If you can buy a recliner from a store for $500, the same recliner at a rent-to-own store may cost nearly $1,000. While making payments can help get furniture in your home, it doesn't help your financial situation in the long run to pay far too much for the furniture you need.


Like appliances and furniture, computers have the same problems with financing when it comes to fees and high interest rates. Financing a new computer could generally end up costing far too much. It probably would have been much less expensive to save up and buy it, instead. But there is also an additional problem that comes about with financing a computer, that isn't as much of a problem with appliances or furniture. Computers quickly become obsolete. They don't last very long, and after a few years they often start breaking down.

They will also not be able to run the software needed for continued operation, and they will be very slow compared to new models. Because of that, financing computers can become a vicious cycle where you are always financing something and never actually own your computer outright. That adds up to hundreds or even thousands of dollars in interest, fees, and other costs over a period of time. That can all be avoided, but only by choosing to buy a computer with money that can actually be spent, instead of financing to get something quickly.

Just as with any financial agreement, financing options need to be examined below the surface, beyond the large signs, and into the fine print. Don't get caught up in taking on more than you bargained for this season.

This content created by Matt Chancey in conjunction with Fusion Capital Management.

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