Buzz
If you’ve ever spent any time listening to the radio in your car, you’ve probably heard those ads for 'six months same as cash' offers. If you're not in the market for a mattress, washing machine, or used car, you might not think much about them. But at some point, you'll likely want to make a significant purchase, and it’s good to understand what 'same as cash' means before such an offer comes your way.
Although the term 'same as cash' sounds simple, it’s actually a way of offering a deferred interest loan. You’ll pay the full price on the item, as indicated on the price tag, as long as you make the payment within the time frame specified—usually three to six months, though it could be longer. You get to take the item home immediately, and often, you’re not required to make any payments until the promotional period ends. But if you don’t pay the full balance before the 'same as cash' period ends, you’ll be charged interest on the entire purchase amount.
American Financial Solutions, a nonprofit credit counseling organization, provides this example:
Imagine you purchase audio equipment for $500. Over the 18-month 'same as cash' period, you reduce your balance to $100. If the interest rate is 25 percent, when the interest is applied, $125 will be added to that $100 balance. Instead of paying $500 for the audio equipment, by the time the payment period ends, you’ll owe at least $625.
This differs from a zero-percent interest credit card offer because in most (but not all) situations, the interest applied after the promotional period only affects the remaining balance, not the original full balance.
If you urgently need a specific item now, consider a 'same as cash' financing deal only if you’re confident you can pay off the balance before the promotional period expires.
If your available credit allows you to make the purchase, you might be better off using a credit card rather than signing up for a loan with these terms. Although you won’t enjoy an interest-free period, you’ll notice the interest decreasing as you pay down the balance.
Of course, paying the full amount in cash is the ideal choice. But if you’re in a tough spot, don’t walk into an appliance, furniture, or car dealership thinking a 'same as cash' deal will significantly ease your financial situation.
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