4.2.6 Case study: Deferred payment plan

Noriko and Tomo think a bedroom suite is too expensive while a sales agent offers financing with no payment in the first year.

Noriko and Tomo were looking for a new bedroom suite, and found a set they liked for $5,000. "We don't have that kind of cash," Noriko said in a low voice.

The salesperson overheard. "No worries," he said. "We have a great deal on right now. Zero down for the first year."

"We don't have to pay anything up front?" Tomo said.

"That's right," the salesperson said. Hardly able to believe their luck, Noriko and Tomo signed the paperwork to finance the suite for three years: no payments for the first year and then monthly payments for the next two years.

All went well for the first year. At the beginning of the second year, the first monthly invoice arrived. "$242.53!" Tomo said.

Noriko looked over his shoulder. "Fifteen percent interest," she said in a shaky voice.

Of course, Noriko and Tomo had seen the interest rate when they signed the financing agreement. It just hadn't sunk in at the time. Now it was sinking in fast—and so were their hearts. Suddenly the bedroom suite looked a lot more expensive—and a lot less of a great deal.

Lessons Noriko and Tomo learned:

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