I was driving to work last week listening to all the ads trying to convince shoppers to part with more of their money. One ad kept repeating that if you bought a car on Black Friday, you wouldn’t have to make a payment until next year. Car dealerships are not alone with the buy now, pay later philosophy. I’ve heard some stores offering 3-6 months or more of no payments after a purchase. It might sound like a good idea to save cash during the holiday season, but buying stuff with money you plan to have later is never a good idea.
It’s A Trick
The ad about no payment until next year was actually pretty funny. If you buy a car at the end of November through a finance plan, you wouldn’t have a payment until January anyway, so the gimmick is just that. There is no special deal. Don’t be fooled by cleverly worded advertisements!
You Probably Have To Spend More
At our office, we offer a plan called Care Credit. It’s basically like a healthcare credit card. I don’t advocate it, but it can make sense if you have a high dollar procedure and need to make payments over time. Amounts vary per type of provider but generally, you can get 0% financing for 6 months if you spend over $299. Otherwise, I believe it’s something like 13% interest.
I’ve seen people who weren’t planning on spending that much buy more just to get 0%. It would make more sense to save up the money for a few months and pay at the time of service.You might even score a cash discount. Don’t buy more just so you can finance it!
You Are Counting on Money You Don’t Have
Whenever you finance something because you can’t afford it at the moment, you run the risk of not having the money when the payment is due. We all plan to save x amount by this day, but inevitably, if you have a payment coming up, that’s when your kid will break an arm or the car will crap out. Next thing you know, credit cards are the only way to afford necessary expenses. It’s a vicious cycle.
Payments Take Away Choices
Perhaps this is the best reason to avoid buy now, pay later promotions. Once you start making payments, you get used to making payments. It’s not a big deal to add another $50 payment here or there. After all, anyone can afford $50 a month, right?
We did this for years until our payments added up to more than double the cost of our mortgage, groceries, and health insurance combined. When you have that many payments, you can’t save for the future, and you’re forced to keep financing.
At this point, you’re working to make payments and thoughts of cutting back, taking time off, or, heaven forbid, early retirement are pipe dreams at best. You also start to look around and resent all the stuff you thought was worth financing. It’s becomes an anchor keeping you attached to the rat race that has become your financial life.
Before you set up a payment plan, ask yourself if it’s the best thing for your finances and long term goals. If you are financing a car at a low interest rate so you can invest more money each month, by all means, go ahead. If you are financing because you’re broke, I bet you probably don’t need it anyway.
What’s the craziest thing you’ve seen a payment plan for? Do you plan on financing anything this holiday season?