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Personal Loans

What Does “6 or 12 Months Same as Cash” Mean?

Advertisements announcing “6 or 12 months same as cash” are everywhere. It sounds like a great deal—you can get something at a great price with up to a free year of no interest. You often see these offers at furniture stores, kitchen appliance retailers, or even heating and air conditioning vendors. But is six months same as cash or 12 months same as cash really as fantastic an offer as it seems?

What is Same as Cash?

Most consumers think “same as cash” means six months of no interest, or even no payments. The offering retailer lets their customers think that, and then they generally put the truth in fine print. Technically it’s correct—if you pay the balance off within that six- or 12-month period, you’ll pay no interest at all.

Some retailers allow you to make very small payments during that time, such as $5 a month, or even allow you to make zero payments. “Zero down, zero payments for 12 months” is an often-repeated phrase you’ll see with these offers, and they sound great. You can have that new washer and dryer set, get your air conditioning fixed, or buy a new couch without having to get stuck with payments right away.

The Dangers of Deferred Interest Offers

Any “same as cash” offer is what’s called a deferred interest offer, and it’s called that because that’s actually what the offer does. When they say “no interest for six or 12 months,” they don’t mean that there is no interest accruing, they simply mean you’re not paying it yet. These offers are typically marketed to people with subprime credit. Those customers may not be able to get a typical bank loan due to their poor credit, and so this offers a way for them to still get what they want.

If you finish paying off the item within the introductory period, you pay no interest and you’re finished with the loan. If you don’t manage to pay it off within that time, however, you’ll be unpleasantly surprised to find that you now owe far more than the original purchase price of the item you financed.

Cash offers don’t work like regular financing. If you take a $1,000 couch on a “6 months same as cash” basis, you might fully expect to pay it off in that six months. The advertised interest rate is 24% on that particular offer, so you’re trying to get it paid off. You only managed to pay off $750 of the original loan, however, and so on the next billing statement, you’ll not only see the $250 you still owe, but also the back interest on the original $1,000 that has been silently accruing the entire time.

In addition, that back interest can sometimes be charged at whatever rate the merchant decides. That means while you may pay 24% on the $250 that’s left over, you could pay 30% or more on the back interest. Unless you’re paying much more than your normal monthly payment, your balance won’t get paid down each month; the interest will accrue faster and in larger increments than you can pay down with a regular payment.

You could even find yourself still paying on that loan years from now. Even worse, you could find yourself unable to make the new payments—and see your credit report take a major hit because of it.

Alternatives to Same as Cash Offers

Before jumping on the “same as cash” bandwagon, you may want to consider other options that will allow you to get the item you need without putting you in a financial vise a few months from now. One option is a credit card, especially one with a 0% APR for the first 12 months. Unlike a “same as cash” offer, a 0% APR credit card won’t charge you accrued back interest if you don’t pay off the balance in the first year.

Another alternative is talking to your bank about a personal loan. If you have decent credit and are an established customer, your local bank may be willing to offer you a small-term loan. Depending on the item you’re trying to finance, you may be able to use it to secure the loan, offering a better chance of approval.

“Six months same as cash” might sound too good to be true—and that’s because it usually is.