Zero Interest is never Zero Interest.

I was reading the newspaper yesterday and noticed the huge amount of zero per cent instalment sales that are being advertised by stores selling laptops, desktop computers, phones and other electronic gadgets.

Let me tell you something about zero per cent. It’s not zero per cent, it never was, it never is and it never will be! I'm going to give you a quick lesson about the behavior of retailers and distributors of electronic equipment - all they want is to 'turn' their inventory as quickly as possible. This means that they are after the quickest possible sale and to collect the money as quickly as possible so that they can buy more inventory and sell it again.

With this in mind do you think they are willing for you to have possession of their product and have you pay for 6 months or 1 year without interest? No way! This is where the credit card companies come in. Long ago they said - ' hey we can make your products sell faster if you do it on instalment basis, we will give you the money up front and collect from the buyer but this is what you have to do...'

• Step 1 - give us a discount on the retail price on each product. But we will still charge the normal retail price. We get the discount. Electronic equipment has high margins on their products so they said yes.
• Step 2 - if our earnings are still not enough then increase the price of your retail price. We get the increase in price. Do you really know the price you should pay for a TV or computer or cell phone? Price variations for these types of electronic products are as different as night and day so they said yes.

Why do they do this? Because credit card companies know one very important fact. Most consumers don't see the total price. They only see the glitzy advertising campaign with all the 'beautiful' people using these gadgets and then... The MONTHLY instalment price! Then they say... Hey I can afford that! It's so cheap lang a month!

Case in point, I was all set to buy my wife a new computer with the best specifications for Christmas last year. We saw a branded desktop computer for only PHP5k a month 12 months to pay. I was about to get lured into the same trap when I happened to walk into another store to compare prices. The lady said she can have the same computer built for me for 20 per cent less with all the same parts if I bought cash. This led me to research more and I ended up getting a computer with HIGHER specifications for HALF the price!

So what's the lesson here?

1. Never buy on instalment. Even on zero per cent. If you look around a bit more I guarantee you can get the same product AT LEAST 10 per cent cheaper on CASH basis.
2. If you can't buy it in cash, YOU CANT AFFORD IT. Generally speaking there should only be 2 times you should be borrowing money in your personal life - to buy a house or a car. And I’m not 100 per cent comfortable on the car.

For more information on how I can help you email me on hoover@barongroup.com.ph.