One of the interesting issues that came up in our annual survey about complaints to state and local consumer agencies is the increasing availability of point-of-sale financing for items such as furniture and appliances. These credit arrangements, which are often offered by online financial service or “Fintech” companies in partnership with retailers, can be helpful for people who can’t afford to pay the total price upfront or whose credit records may be insufficient to qualify for loans from other sources. They enable consumers to take the merchandise home that day and pay for it later or over time.
While promises of “No Credit Needed!” “90 Days Same as Cash!” “No Interest Financing!” sound great, what do they really mean? This may not be clear, especially when the terms are presented on a handheld device or laptop computer, requiring consumers to scroll through multiple screens to read them. It’s tempting to simply hit “I agree,” but people may be in for a costly surprise if they don’t understand the agreement they’re making.
“No Interest Financing” and “Same as Cash” generally mean that consumers can avoid interest charges by paying the full purchase price within a certain period of time. If they don’t, a high rate of interest may be applied for the entire period, which could double or even triple the cost of the item.
“No Credit needed” is aimed at people who aren’t eligible for the no-interest deals. These may be a rent-to-own or lease agreement rather than an outright purchase. Consumers’ payments will add up to much more than the original purchase price, and if they miss a payment, the item can be repossessed.
“Easy financing” may mean a loan offered at the time of sale to help consumers pay off the purchase over time. However, these loans often have annual percentage rates as high as 188 percent, even in states with strong interest rate caps. This type of financing can be found on a variety of different consumer goods including furniture, auto repairs, and even pets.
The financial world is constantly evolving, with the promise of providing consumers with more services tailored to their particular needs. But the aim of providing in-store financing is mainly to lock consumers into making purchases before they change their minds, not necessarily to give them the best or most affordable deal.
When considering in-store financing, consumers should resist pressure from pushy salespeople, read the document carefully even if that takes time, ask questions to make sure they understand the terms and true cost (things like finance charges and late fees increase the annual percentage rate), and be sure to get a copy of the agreement in a form that they can easily access (for instance, a printed copy if they prefer that or don’t have a way to deal with an electronic version). It would be great if retailers that make financing available were required to give consumers the equivalent of the Schumer Box, the simple table that credit card issuers must provide showing the interest rate, fees, and other information that’s necessary to comprehend and compare the cost of credit cards.
The Consumer Financial Protection Bureau explains how special promotional financing involving store credit cards work, and the Federal Trade Commission provides information about the differences between rent-to-own, leasing, and other financing options. For many consumers, the best decision may be to put the items they want on layaway (though it’s important to know the cancelation and refund policy for layaways) or to simply save up for what they want to buy.
Consumers who believe they were misled about the terms or cost of financing retail purchases should contact their state or local consumer agencies for advice about to do.