Turn Store Financing Offers Into Interest-Earning Free Loans

Store financing offers like 0% down, pay nothing for 6 months, etc, can be a way to lure those who really shouldn’t be buying stuff into purchasing, but if you actually have the cash in hand already, you can leverage them into the equivalent of an interest-earning free loan.

Here’s how one guy says he does it:

Whenever I buy a big ticket item, I make sure I have the cash to pay for it. Then I wait for store financing offers — same-as-cash or deferred interest for an extended period. I opt for the financing, put the cash in a (certificate of deposit) that matures just before the end of the promotional period, and pay it off before the deferred interest becomes due. It’s like a free loan from the stores and I can earn interest while I enjoy the item!

“Circuit City recently had a special (of) no payments until January 2008. I bought a flat-screen TV, the camera I’ve been ogling for two years, and a bunch of other little things I needed, like printer cartridges. Total $2,500. Put $2,500 in 2-year CD earning 5.25% APY. That’s $262.50 I’ll earn during that time.

If you’re disciplined, good with calendars and spreadsheets, and cash-flush, this store financing arbitrage can be a good trick. Just make sure the item is something you need and can afford in the first place. No sense in buying something useless just to feel clever about your L33t money hack skills.

12 cool money tricks [MSN]

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  1. muddymaesuggins says:

    hmm…he’s a little late on that payment from 2.5 years ago!

    • skylar.sutton says:

      I concur. I stopped reading when I hit: “Circuit City recently had a special (of) no payments until January 2008.”

      • bwcbwc says:

        That “Circuit City” line gave me a good chuckle, too. We all know how that turned out.

        But it’s still a pretty good deal in terms of opportunity gains: You’d probably have the cash in a CD or MMA anyway, but you get the free use of stuff for x months. Too bad you can’t pull this kind of trick on 0% auto financing…

  2. nbs2 says:

    5.25%, Published 2006, January 2008? Sounds like a full inbox.

    Jokes aside, that’s what we do, but with the following caveats –
    1) Most of those places still have minimum monthly payments. We just put the money in a dedicated ING account and pull one payment out every month

    2) Sometimes there is a cash payment discount. I’d wager that 99,999,999 times out of 100,000,000 you can get more a bigger discount than you would earn in interest.

    • Mr. Stupid says:

      Are you saying that paying cash is less, or not? You go from saying “sometimes” to saying that there’s a 99.9999% chance that paying cash yields a higher discount. Well, which is it? And which stores are you shopping at that are cheaper when you pay with cash?

    • humphrmi says:

      I’ve never seen a cash discount at places that hawk free financing. They hawk the free financing because in most cases, people don’t pay it off before the free period, and they collect more interest.

      Now a gas station – yes, I’ve seen cash discounts. But they don’t offer 90 day free financing.

      • AustinTXProgrammer says:

        Rooms to go gave me 5% for cash, the Oral surgeon the same. My checking account earns 4.5% apy, and none of the financing would have been same as cash for long enough to make a difference.

        Certainly can’t get 5.25% on a CD today!

    • weestrom says:

      re: 1) It’s not most, its now ALL as federal law changed and outlawed no payment financing.

  3. fatediesel says:

    Have you seen CD rates recently? The average 6-month CD rate currently is 0.35%, and for 1-year you’re only looking at 0.61%. You’re not going to find anything like the 5.25% from 2008 mentioned in the story.

    • Gramin says:

      Sooo true!!!

    • Nyall says:

      Its not a CD but my credit union gives a 4% return on my checking account.

      • Nigerian prince looking for business partner says:

        What’s the name of the credit union? A guaranteed return of 4% is remarkable for any kind of investment, let alone just a checking account.

        • Nyall says:

          Mine is Lake Michigan Credit Union. (www.lmcu.org) I believe I’ve seen several articles on consumerist about how generous credit unions are.

          There are some catches:
          limited to $15000
          I must use the debit card 10x a month.
          I must log into the website 4x a month.
          I must have direct deposit.

      • trentblase says:

        Give me the name of that CU RIGHT NOW! I will find a way to bank there.

        • jnads says:

          Cedar Rapids Bank & Trust has 5.0%, up to $25,000

          Same restrictions. Must use debit card 15 times/month to earn the rate.

          • trentblase says:

            One time I bought $.05 of gasoline twice a month with my Discover card just to keep alive a 0% balance transfer (you could keep it forever, but eventually the 15% rate on your purchases would add up as payments went first to the balance transfer)

  4. amd555 says:

    Best Buy always has something like that

  5. JohnDeere says:

    I just pay with my tax refund. hate that home depot requires minimum payments now. but sears still does no payments and no interest for 12 months occasionally.

  6. Gramin says:

    Come on Consumerist… get with it. This article is from December 2006!!! You can’t find any CDs at 5.25% APY right now. In fact, you’re lucky to find one that’s above 1%, and then most of those have 60 month maturities, which is outside the no interest financing terms of most stores. You’re really not helping consumers by spreading information that is entirely out-dated.

  7. balthisar says:

    I did that for my ground source heat exchanger. Except instead of a CD, it was my money market account for slightly less interest during the interest-free period. And instead of $2500, it was, well, a lot more.

  8. Thyme for an edit button says:

    No payments until 2008? GREAT!

  9. Jesse says:

    Just make sure you make your payments on time and you don’t go a day over on the promotional period. That’s because interest is still calculated but deferred and if you are late or don’t pay the entire interest free portion of your balance by the deadline, all that interest will suddenly show up.

  10. Skellbasher says:

    This type of thing worked back in 2006. Used to be able to profit off the bounty of 0% balance transfers with those 4%-6% online savings accounts and CDs.

    Now, even if you can get a 0% dead, you’re getting at best 1%-1.5% return on it. Unless you’re dealing with gobs of money, or large purchases, the trick isn’t all the worthwhile.

    • dangermike says:

      yeah, $2500 in a 1%/year CD for 6 months will net about $12. Not even worth the time it takes to set it all up. Then again, even at the 5% of years gone by, we’re only talking $60. These days, you’d be better off putting it on a cash back credit card (which, of course, gets paid in full each month to avoid accruing interest)

  11. AnonymousCoward says:

    If a store is offering 0% interest, you can often just ask for a cash discount. A lot of stores will give you a cash price that takes into account prevailing interest rates. Much simpler than all this hoop jumping.

    • trentblase says:

      This is what the article should have been about. Thanks!

    • Nigerian prince looking for business partner says:

      I’ve never had any luck doing that.

      I always assumed that the “same as cash” promotions” were a huge money maker for furniture, mattress, and electronic stores because a huge number of people don’t pay the accounts off in time. They end up racking up a years worth of interest at some obscene rate.

    • DigTheFunk says:

      As someone who used to sell cars(thankfully BEFORE the recession), I can tell you that this simply is not true, for the most part. Sure, exceptions to every rule and all that, but most places that finance purchases make a lot of money through financing deals, be it people missing payments/not settling up in time, the deal they have with a financial institution, etc. We hated when people were paying cash, because 1) they thought they deserved a better deal, which isn’t true and 2) they lost us financing deals, which as I said, were our big money makers.

  12. SpendorTheCheap says:

    So you pay with the money you loaned to the government, interest free?

    Are you providing a counter-example to the smart guy in the OP?

  13. yellowspaced says:

    Problem is you can’t do this anymore since under the new credit card rules they can’t do no payments no interest. you have to make some min. payment each month now.

  14. Geekybiker says:

    Most places that have these deals will give you additional discounts up front if you pay in cash.

  15. Trick says:

    We do this all the time. When we decided to buy something if there is a offer to pay for it over six months or more we’ll take that offer. I leave the money in my savings and depending on how long, pay it so I pay the balance off in full one full month before the plan expires.

    We won’t become rich by doing this but it really is free money because we earn a little extra in interest that would have not been there had we paid the bill in full at the time of purchase…

  16. Mr. Stupid says:

    Reminds me of when I bought my new Civic two years ago. I was on the way to the bank to pick up a check for $15K. I heard a radio ad that said Honda was offering 1.9% financing. Well, I went straight to the dealership and rearranged the deal to get the rate. At the time, CDs were paying well over 1.9%.

    I started with 3 $5K 1 year CDs at roughly 3%. Now, of course, 1 year CDs are shit, and I am paying $20 in interest a month on a loan I never would have had in the first place. I suppose I should just pay it off.

    • JonBoy470 says:

      I walk into the dealership and tell them “My bank will give me X% for 4 years. I don’t want to hear about financing unless you can beat that.”

  17. The cake is a lie! says:

    I’ve always done that. The only thing I pay interest on is my mortgage. Everything else is just calculated and only financed if it is at 0% for a certain amount of time.

    This is a good way to pad your credit score too, by the way. Credit scores are largly based on the number of on time payments you make. If you can finance something for 12 months when you have the cash to pay for it now, just sock the money away and make the payments for 12 months. It will do wonders for your credit. You just have to have a shred of dicipline not to spend the money more than once while you are doing this.

  18. Dallas_shopper says:

    I’ve done that before, it rocks. About to do it again.

  19. Rachacha says:

    My wife and I did this with our mortgage and HELOC we had. For 3 years we had multiple 0% interest CC and we transfered our mortgage to the 0% card and kept making our regular payments. The end result was we were able to knock off about 5 years off of our mortgage saving us thousands of dollars. Our credit score took a hit because we had an enormous balance on credit cards and several hundred thousand dollars in available revolving credit, but within 2 months of paying off all of the cards and closing the ones we no longer needed we went from a a low of about 650 back to 760-780.

  20. george69 says:

    I just got a wicked deal on a ARM mortgage. The house is a bit more then I can afford, but houses will always increase in value and its not like I will loose my job cause the economy is booming. I will ride this bubble to the top I tells ya.

    In 2009 I plan to sell and pocket the profit becore the ARM resets. Its a fool proof plan.

  21. Beeker26 says:

    You would be much better off taking the money you put aside for the big purchase and using it to pay off another high-interest debt, like a credit card. Why open up a CD at 1.5% while you’re still paying off a credit card at 22%? Or a car loan at 9%? Or your mortgage at 4%? All of them are better alternatives to the CD and will save you more money in the long run.

  22. JANSCHOLL says:

    Another option is to have a rewards card that pays more than the current cd or mma pays. I have a card that pays 3-4% cash back with no limit and another that gives me points depending on what I buy again no limit.. I always pay my bill in full and right now my credit union just lowered my interest to .84 % on my savings (6 figures of savings-the stock market is looking better all the time with dividends.). By the time I pay the tax on that savings interest, how much is left. So I take the points…I just ordered a lens for my dslr, a net book and still have enough left to buy a really nice baby gift for grand child coming soon. Always make your money work for you. But remember-don’t buy simply to buy. And never pay retail.

  23. JANSCHOLL says:

    There are some really good stocks out there paying 5% or more yield in dividends and with long term investing, better on tax return. Also, the right investment will get you more $$ in the long run. Check out dividend.com for some suggestions. All that rigmarole at a fiduciary to keep a level of interest would drive me nuts. I sometimes go a month without spending a penny and then make a massive shopping trip, so how could I make that many debit withdrawals as some CU want? Plus I dont want a limit on how much max they pay interest on. On all or none. At the end of the month, I only owe my mortgage and normal living expenses. And I won’t want it any other way.

  24. Myotheralt says:

    I just bought a pair of shoes and a couple shirts at Kohls, and they offered 15% off just for applying for a store card. I had no beliefs of getting the card, I probably would have abused it. But, I paid 15% less than otherwise.

  25. g051051 says:

    I do this all the time, for every large purchase I make. I’ve done it successfully for years, on everything from a new set of kitchen appliances to a new A/C system in the house. I’ve saved many thousands of dollars in interest by using these programs and making sure I pay them off. It’s great if you’ve got the discipline to meet the repayment schedule.

  26. aleck says:

    The article is a bit dated.
    - first, not many stores offer zero percent financing now
    - most importantly, there are ZERO CDs now that give you 5% APY.

    • Dallas_shopper says:

      I financed my windows at 0% for 12 months but of course all that interest compounds on the 13th month if I haven’t paid off the balance. The balance will be paid and the money to pay that balance is already sitting in an interest-bearing account.

      They also offered me a 60-month plan at 6.9% but I turned that down. That’s more like a freaking car loan. Windows cost way less than a car. If you can’t pay off less than $10k in 12 months or less, you don’t have enough saved up IMHO.

  27. 401k says:

    That CARD Act that went into effect in February 2010 requires a minimum monthly payment, even if an item is on promotion.

  28. pezjohnson says:

    The only problem I have with his whole plan is that he doesn’t address the minimum due. You have to read the fine print. If it’s truly no payments due, then you should be fine. But no interest mean you have to pay at least the minimum due, or they charge back the interest. Best Buy has that deal on normal purchases, and the last time I bought something I had to pay either $15 or 10% which ever was more. Read the fine print before you try.