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The Worst Buy from Best Buy

Visit a Best Buy store now through 11/24/04 and pay no interest until 2007 on every in-store purchase
Offer valid on all purchases totaling $399 & up in these categories:
  • All Home Theater
  • All Desktop & Notebook Computers
  • All Major Appliances
  • All Digital Camcorders & digital Cameras
  • Add accessories, DVDs or gift cards to your purchase to reach $399.

Offer Valid in Best Buy stores only, now through 11/24/04.

Buy stuff without having to pay any interest for two years... how can that not be a good deal? It could save some money, or it could turn out to be more costly than you had planned. It all depends on how good a job you do keeping track of it.

First, let's try and figure out how much you that interest savings is worth, assuming you purchased $1000 of merchandise from Best Buy.

There are two very distinct approaches to take on how to calculate this: if this were merchandise you were planning on purchasing anyway, and you were going to put it on your credit card, we'd calculate this based on your credit card rate.

But if you're spending more than you might otherwise have spent, or if you would pay this amount out of your checking or savings account, we'd calculate it based on the interest your bank is paying you.

Using some simplifying assumptions, and assuming a credit card rate of 9.9% and a bank paying interest of 2% a year, here are the results:

credit card interest saved $198
bank interest earned $40

Now let's take a look at the details of this deal from Household Bank:

Required minimum monthly payment is greater of $10 or 2.25% of balance. Interest will be charged to your account from the date of purchase if plan balance is not paid in full before January 2007 or if minimum monthly payments are not made.
Deferred Interest Info.: Variable Standard APR = Prime Rate + 14.4 percentage pts. (19.8% as of 10/1/04). Variable Default APR = Prime Rate + 18.4 percentage pts. (23.8% as of 10/1/04). Standard Min. APR 19.8%. Default Min. APR 23.8%.

To avoid getting stuck with paying an interest rate of up to 23.8% for the two-year period, you have to never miss a payment plus you have to remember to pay off the balance in full, just while you're in the middle of your Christmas 2006 activities. If you're a really great bookkeeper, this should be no problem.

If you succeed and make the required payment of 2.25% of the balance each month, you'll have paid down about half of your balance.... but if you fail, almost all of your payments will have been spent on interest, and after making those payments for two years, you'll owe nearly the whole $1000 you started with.

That's because that interest rate will have eaten up the majority of your minimum monthly payments.

Again, making some simplifying assumptions to do the calculations, and assuming you make the required payment each month but forget to payoff the balance by January 2007, you'll be out of pocket for $396.

So there it is:

Woo hoo!

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Revision r1.1 - 23 Nov 2004 - 05:14 by EliMantel web search for EliMantel
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