Consumers love "buy now, pay later" deals that major furniture and appliance retailers offer this time of year. But are they really such a great deal?
Typically, the deals work by offering a customer the ability to go home with a major household appliance today, but not have to pay for it until sometime in the future. At the moment, the deals are likely to delay payments until sometime in 2013.
There's typically a fee of about five to seven per cent of the price, up front. But no more interest will be charged up until a certain date, allowing customers to come up with the cash later for something they want today.
"People want to get something now," behavioural economist Doug Steiner told the CBC's Lang & O'Leary exchange recently. "And it's a very powerful feeling to get something for free."
As long as the customer is diligent and pays in full once interest is charged, the financial cost is not overly usurious — though better rates can be had simply by borrowing from a conventional line of credit at the moment, Steiner notes.
It's only when the customer misses a payment or passes the deadline that the fees really add up. They can be as high as 32 per cent per year at that point.
"People tend to think positively about the future," Steiner said in the interview. "But if you can't save the money now it's very hard to save the money 18 months from now," he warns.
Watch the player above to see his interview, or click the embedded link to watch the clip in a new window.
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