Buy Now Pain Later

Q: I've just moved into a new condo and everything looks great except my old furniture. The store down the street is advertising no interest and no payments for 12 months on new furniture. What's the catch?

A: The catch is that if you do not pay the balance in full before the end of the interest-free period, you may end up paying interest on the whole balance owing from the day you left the store with your new furniture. At an interest rate of 28 per cent or higher, that great deal you got would be completely offset by interest charges and could add 50 per cent or more to the actual purchase price of the furniture.

Once you qualify for the program, you will likely receive a store credit card allowing you to purchase other items. If you use the credit card for future purchases, the interest-free offer most likely won't apply. This can complicate matters if you don't stay on top of what you buy and the payments you need to make.

The reality is that the interest-free, pay-later option is only a good deal if you pay on time or early.

Before making any decisions, take a look at your budget and determine how much of a furniture payment you can afford each month, in addition to your regular monthly and seasonal expenses. Will your budget allow you to repay the loan before the interest-free period ends? If the answer is no, don't buy the item.

If you are confident you can pay the loan in full, read the fine print and make sure you understand all the fees, key dates, terms and conditions before going ahead with the purchase. Also, have a low-interest credit card as a back-up plan in case your situation changes. Your new couch should last longer than your payments for it!