Delayed payment plan can hide charges, fees

Joan Parker of Westbrook had moved into a new apartment but was short on both cash and furniture, so she jumped at a furniture store’s televised offer of “no payments for six months” and “low finance charges.” Joan knew she couldn’t immediately afford monthly payments, but she had just started a new job, and figured she would be in better shape within six months. So she purchased $3,352 in bedroom and kitchen furniture, made a $200 down payment, and relaxed. Boy, was she in for a surprise!

Seeing the “$0 due” on her monthly statements from the credit company, Jean just put the bills aside. After six months, she received a statement requesting her first $87 monthly payment. But the balance due had shot from $3,152 to $3,445! How could this be?

Upon closer examination, Ms. Parker realized that “deferred finance charges” of $271 and a “periodic finance charge” of $22 had been added to her bill. Not only that, but the annual percentage rate was now 21.93 percent, not the “low” 9 percent she had been promised. Joan had fallen into a credit promotion trap.

Many companies make “delayed payment” offers to attract customers. Surely you have seen the advertisements. “No payments or finance charges due until 2006!” they promise, in an attempt to bait cash-poor customers. One key word in these ads is “until,” often meaning that finance charges will accumulate during the “no payment” period but, unless a consumer pays off the entire balance by the end of the promotional period, he or she will be billed for all the interest that has built up on the balance due. In Joan’s case, that was $271 of extra cost.

In addition, Jean’s “low annual percentage rate” of 9 percent had also disappeared. In reading the fine print, Jean realized this was an “introductory” rate. After the six months had passed, the rate had shot up to 21.93 percent. It’s one of the games tricky companies play.

It was too late for Joan, but it may not be too late for YOU to avoid this trap. If you respond to a “no payment,” “low interest,” or “no interest” offer, ask probing questions before you sign on the dotted line. Make sure you understand the agreement and terms.

Whether you are buying a couch or a car, if the salesperson says no payments are due for a set period (let’s say 12 months), ask what happens after the 12 months are up. Will you be billed for “deferred finance charges” for the entire balance? At what rate is the APR set during the 12-month period? What will the APR be after the 12 months are up?

But don’t count on his or her word, because often salespeople don’t even understand the complexities of credit themselves. They just want to make the sale and get their commission. Read the credit application closely. Look for key words such as “deferred,” which is not the same as “no” or “never.” “Deferred” means that sooner or later, you pay. Also look for the word “introductory.” That means that at some point the terms will change and the rate will go up.

What could Joan have done, other than read the paperwork more closely? One option would have been to approach her bank or credit union and ask for a secured line of credit, personal loan, or other arrangements to avoid accumulated finance charges or a high APR. We suggest you consider the same before falling into a credit trap … and always look before you leap for any “easy credit” offers.

Consumer Forum is a collaboration of the Bangor Daily News and Northeast COMBAT (Consumers Of Maine Bringing Action Together), Maine’s membership-funded, nonprofit consumer organization. Individual memberships $25, business rates start at $125 (0-10 employees). For help and information write: Consumer Forum, Bangor Daily News, PO Box 1329, Bangor 04402-1329.