TIPS FOR TOUGH TIMES
Issue #54					Maryland Attorney General's Office
						Consumer Protection Division

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NO-INTEREST FINANCING CAN COST YOU PLENTY

"0% Interest for 6 months"
"No Interest for 12 months"
"No Interest, No Payments until July 1997"

"Free Financing" offers seem to be everywhere these days. If you are a careful consumer and read all of the fine print, you might be able to save some money with a "no-interest" buying plan. But beware _ many no-interest offers carry hidden charges that can more than make up for the interest charges, or are not really offering what they say.
Here are some questions to ask before you sign up for a "no-interest" financing plan:

* Will you have to pay interest and then get it refunded back to you at a later date?

* What happens if you cannot pay off the full purchase price by the designated date?

* If you end up having to pay interest because you cannot pay off the full purchase price, what is the interest rate you will be charged and when will it begin accruing? Would you be better off using your lower-interest bank card?

* Is the price of the item inflated to make up for the lack of interest?

Hidden costs

"No interest" financing plans can carry some hidden costs. Here are some you might encounter:

* 0 interest only if full payment is on time. In many "zero-interest" programs, you do not have to pay interest for the first six months, or whatever period of time is advertised. However, if you do not pay off the full price of the purchase within that time period, you will then be charged interest on the entire purchase amount dating back to the purchase date, even if you have paid off most of the balance. Often, the interest rate charged by the store is 20 percent or more _ higher than most bank credit cards.

More than half of the consumers who signed up for "no interest" financing plans with one company did not pay off the balance in the time required and ended up paying interest.

* Interest paid but rebated. In some no interest programs, your payment each month does include an interest charge.  If you make all of your payments on time and pay off the entire purchase price by the agreed-upon date, the interest you have paid is credited back to you. If you miss a payment, pay late one month or do not pay off the whole balance by the end of the agreed upon period, you don't get your rebate.

* Inflated prices. Some stores offer "no-interest" financing but inflate the selling price to make up the difference. A recent advertisement from a large appliance chain offered a choice: no interest for six months or $150 off the purchase price. Another chain offered comparable 35-inch televisions: $1,499 with no interest for 15 months, or a similar TV for $999 without the no-interest offer.

* Minimum purchase requirements. "No-interest" financing offers can include minimum-purchase requirements or may apply only to specific brands.

* Store credit card catches. If you make your purchase on a store credit card on which you carry a balance or make other purchases that are not "no-interest" financing, you might have to make two payments each month: a minimum monthly payment and the payment due under the zero-interest program. Read your billing statement carefully to understand what payments you have to make and when they are due.

If you are interested in a "zero interest" offer, read the fine print in the advertisement and the financing agreement. Make certain you understand exactly how the store's "zero interest" program works. There are many different types of programs. Also, if you are not familiar with the product's price, do comparison shopping to make certain the product is not available elsewhere at a substantially lower price. A "zero interest" purchase will save you money only if you are able to comply with the terms of the program and the purchase price is a reasonable one.  



CAN YOU COMPARE THE COSTS OF PAYING FOR THINGS OVER TIME?

Unfortunately the answer is not always. In 1968, Congress passed the Truth in Lending Act requiring merchants to disclose to consumers borrowing money or purchasing goods over time the Annual Percentage Rate ("APR") of interest. For transactions regulated by that law, all merchants must compute the APR the same way and consumers can easily compare the cost of credit.

In recent years, however, alternative forms of consumer credit transactions, such as rent-to-own and auto leases, have emerged in the marketplace. For the time being, merchants using these forms of credit transactions are not required to disclose the APR. It is therefore extremely difficult for consumers to compare the cost of credit when entering into such transactions. Although it is not as accurate or easy as comparing APRs, consumers entering into these transactions need to find out the total amount of money they will end up spending under the contract. They can then compare that total cost with the total cost they will pay under other forms of credit. The bottom line is that consumers must always learn the cost of the credit before signing on the dotted line in any contract.

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July 1996. Tips for Tough Times is produced by the Consumer Protection Division of the Maryland Attorney General's Office.
J. Joseph Curran, Jr., Attorney General
William Leibovici, Chief, Consumer Protection Division
Lucy Weisz, Deputy Chief, Consumer Protection Division
Jackie Ward, Editor
Andrea Cooper, Graphics

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Volunteers Needed

Help consumers with problems, experience the workings of a law enforcement agency, and develop valuable skills by volunteering at the Consumer Protection Division's downtown Baltimore office as a:
* Consumer Affairs Mediator: Mediates consumer complaints against businesses and responds to consumer inquiries on the telephone hotline.

* Health Advocacy Mediator: Mediates consumer complaints against health care providers and responds to consumer inquiries on the telephone hotline.

* Legislative Aide/Consumer Advocate: Assists in conducting research, preparing reports on consumer issues, and monitoring state and federal legislation affecting consumers.

Our office is convenient to the Light Rail and Metro. The Inner Harbor, museums, theaters, restaurants and other attractions are close by. Interested? Call Ann Brooke at 410-576-6550.

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HOW YOU CAN REACH US

Consumer Protection Division, Maryland Attorney General's Office
Downtown Baltimore
Consumer Protection Division
200 St. Paul Place, 16th Floor
Baltimore, MD 21202-2021

Complaints
* General: (410)528-8662 (9 a.m. to 3 p.m., M-F)
* Health Education & Advocacy Unit: (410)528-1840 
	(9 a.m. to 4:30 p.m., M-F)
* D.C. Metro Area: (301)470-7534
* TDD for hearing impaired persons: (410)576-6372
Send written complaints to:
Consumer Protection Division
200 Saint Paul Place, 16th Floor
Baltimore, MD 21202

Branch Offices
* Cumberland
	(301)722-2000
	(9 a.m. to 12 p.m., 3rd Tues. of each month)
* Frederick
	(301)694-1071
	(9 a.m. to 1 p.m., 2nd and 4th Thurs. of each month)
* Hagerstown
	(301)791-4780
	(8:30 a.m. to 4:30 p.m.)
* Salisbury
	(410)543-6620
	(8:30 a.m. to 4:30 p.m.)

