Merchants are always trying to separate you and your money. Sometimes they try to lure you in with sales, even though the sale prices aren’t really that great. And sometimes they use other sneaky and under-handed tactics to make a bad deal look like a good one. Here are a few examples:
Deferred Interest
My friend recently bought a new house and told me that he and his wife bought new furniture. The furniture store offered a financing option which stated that it would be “0% interest for one year.” I’m all for taking advantage of 0% interest. When I do though, I make sure that I have the cash to pay off what I owe. My co-worker, on the other hand, did not have the cash to pay in full and took the payment option hoping he’d have the cash when the 0% interest ended. He said that he didn’t think it would be too bad, because at least he didn’t pay any interest for a year and if he was able to come up with the cash soon, he’ll only incur the interest payments starting at the expiration of the 0% period. But he said that was learned that this financing option was actually “deferred interest.” These offers are misleading. As opposed to true 0% interest offers, where you are not accruing any interest during the introductory promotional period, a deferred interest account is actually accruing that interest during those months and you’ll have to pay all the accrued interest if you do not pay off the balance in full by the end of the intro period.
The Extended Warranty
It’s possible that having an extended warranty might come in handily for some people, but I’ve never gotten it and think that it’s a waste of money. With extended warranty, I think most people overpay, never use the warranty or the warranty won’t cover what it is that you need it to cover. There’s also the manufacturer’s warranty and extended warranty protection that some credit cards offer when you make the purchase with that card.
A friend of mine purchased an extended warranty for his smartphone. Smartphones are expensive and he didn’t want to have to pay for an expensive repair bill if anything were to happen to it. The extended warranty was “ONLY” $8 or $9 a month. After about a year, the screen of his smartphone cracked when he accidentally dropped it. No problem right? He has an extended warranty! His smartphone was replaced, but they told him that there was a $100 deductible! So basically, he paid about $8 to $9 a month for a year and on top of that, still had to pay another $100 to have the phone fixed. How much would it have cost out-of-pocket if he went to a repair shop? About $100!
Bait and Switch
When I was looking to buy a car, I saw some advertisements offering really good deals. Deals that seemed too good to be true. When I arrived, the salesman would tell me that I just missed it! Someone had already bought that great deal of a car…but there was a similar though more expensive car available. Classic bait and switch.
The Fine Print
During that same time period when I was car shopping, I went to a dealership to look at a car which had a price which seemed too good to be true. The salesman explained to me that the price was the price AFTER the down payment. And, yes it did say that in the advertisement in teeny tiny letters on the bottom. It also mentioned that I’d have to use their financing.
Exit through the Gift Shop
I’ve noticed this a lot more often now that I’m a parent. It seems that a lot of kid-oriented places like theme parks have the gift shop right by the exit. As a matter of fact, you cannot exit unless you go through the gift shop. They know it’s tough for some parents to say no to their child, and by forcing everyone to walk through the gift shop, they know they can count on the kids to persuade their parents to buy something.
What other things should consumers watch out for?
Extended warranties on cell phones are the one item I have more than gotten my value from. My current phone (HTC One M8) and twice I’ve had a full phone replacement, only at a $5 cost each time. When it’s a phone error (bad pixels on screen first time, headphone jack not working in second phone after a few months) for T-mobile, you just pay $5 and get a full phone replacement.
I always have things wrong with my phones (and I get different brands) and end up needing a warranty replacement at some point (previous model phone got stuck in boot load screen). So the extended warranty I highly recommend. I avoid cracked screens however, by keeping my phone in a case. 😉
Also, if you live in an urban environment, I recommend the insurance to cover loss/theft. Phone snatchers are no joke. I’d rather pay a $100 deductible for a new phone versus having to pay full price for a replacement. My brother had his first ever smart phone snatched out of his hand on the bus.
Good to hear that you’ve gotten your money’s worth with extended warranties. Would the manufacturer’s warranty have covered those issues though? I think they can make sense, but you really have to read the fine print. Plus, if you have bad luck with phones then you may not want to tempt fate. And I really need to get a case to avoid cracked screens.
Haha, oh yeah Andrew. The retailers know all the games. If they are offering a “program” or “special”, you can bet it’s a profit center for them. Best case for the consumer, the item is a loss leader and the consumer walks away without too much damage. The retailers are in business for only one reason, to make money. That’s not a problem, so long as we all understand that!
I hope your week is going great
-Bryan
Income Surfer recently posted…My Interview on Islands of Investing
Sometimes I only buy the loss leader…retailers probably don’t like me too much!
When I was at Universal Studios recently, I noticed all the exits to the ride had to go through the gift shop to get out. Clever people!
Tonya@Budget and the Beach recently posted…Moto G Smartphone Giveaway + 3 Months of Service
Yea, you can’t run from it!
I recently had to go *through* the gift shop (with my kids) at the Reykjavik airport (Iceland) so I could catch my connecting flight. How disturbing is that???
Stockbeard recently posted…Are you willing to sell your soul for $167.97 an hour?
What?! Even at the airport?
We were having sunday brunch at cracker barrel and were forced to exit thru the gift shop ~ and wait in a long line.
Enjoyed the article!
Laura Beth @ How To Get Rich Slowly recently posted…The Many Ways I am Changing Because of You
Wow, I guess it’s not just at theme parks. I just read that it happens at an airport too.
The grocery shop I go to has good prices in general but I have noticed that they use red tags on items to lure people into thinking that stuff is on sale. The most ridiculous item was 2 kiwi fruits of special variety that were “only 2 dollars”. If you checked the per kilogram price you would quickly realize that it was not a great deal.
Mrs DN @ The Dollar Notes recently posted…10 tips for an awesome wedding on a budget
Yea, they’re counting on you to not do the math and just assume that it’s a good deal. It has a red tag…it must be a good deal right?
Those naughty tactics bug the crap out of me. So does the “Only x dollars a month!” tactic. We used to fall for the “I can afford the payment” scam for years, but no more. Now we think in terms of how much total cash will be leaving our pockets before making a purchase.
Laurie @thefrugalfarmer recently posted…Thanksgiving Menu 2015
Oh yes, I hear people talking about the monthly payment ALL THE TIME. Yea, if you spread the payments over a long period of time, you can always make it seem like it’s affordable!
Points and gameification of deals can be good if you’re already really passionate about CVS or Target, but for most people opting into gameified deals platforms leads to higher spending.
I’m pretty passionate about gameification of Target by using mobile coupons and cartwheel but I still sometimes find myself sucked into buying things I really don’t need. And CVS…oh boy, they waste so much paper printing out those coupons at the checkout counter. But my wife is good at getting deals there.
I have been a victim of these especially the extended warranty. Customers should be smarter nowadays and try as much as possible to look into every detail before buying a product.
Jayson @ Monster Piggy Bank recently posted…Do You Know How Other People Perceive You?
Yea, we have the internet nowadays so it’s much easier not to fall prey to some of these tricks.
Hmm I wonder if an “extended warranty” is the same as “insurance” for a smart phone? I’ve paid for insurance in the past because I couldn’t imagine paying $600 for a new phone…but you’re right, there are a lot of things that retailers do that really aren’t worth it. Always important to read the fine print and know 100% what you are getting into.
DC @ Young Adult Money recently posted…How to Stick to Your Debt Repayment Plan
The two seem to be the same thing or similar. I guess it really depends on the fine print. What does the manufacturer’s warranty cover? What would the insurance cover? With the phone nowadays, it definitely wouldn’t make sense for me to get insurance as I buy refurbished phones.
I think insurance would cover having your phone get lost or stolen (though there is probably some gray space here as it would be easy to “lose” your phone towards the end of the contract haha). I’m not sure what a warranty would cover, now that you mention it.
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I actually hated Disney World because literally every ride ended in a gift shop that was themed according to the ride that just inspired your kid that was on the ride. We literally got off of every ride on a high only to end in a fight with my son as we said he couldn’t have the toys from the gift shop. I understand that they want and need to make money but it’s really a frustrating thing for parents who don’t want to waste more money than they already have paying to get into the park.
Shannon @ Financially Blonde recently posted…Sofa Surfer to Millionaire
Yea, it really seems unnecessary. It definitely adds to the stress when you are constantly confronted with that conflict after each ride. Oh and of course before the ride too. When you’re waiting for the rides (which is often a lengthy wait), they’re always trying to sell you snacks and treats.
Great tips!
The one that gets a lot of people is the ‘Free Trial’ of services like Amazon Prime… Many sign up with the intention of cancelling (or at least reviewing whether the membership is worth it) before the trial is up and then forget to do so. They then protest when a charge to their card is made which although it can be disputed and refunded in some cases, it need not have been taken in the first place!
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I forgot to add that in there. I think businesses love subscription services because they’ve got you paying every month. Sometimes the monthly payment isn’t high so people don’t realize it, or even if they do, they figure…well it’s not that expensive so I can keep it (even when they rarely use it- see gym memberships).
During our honeymoon, which was just us going to Orlando and doing theme parks, Tim was dismayed by the blatant merchandising at Disneyworld. Most of the rides let out directly into gift shops.
And yeah, the deferred interest is so tricky! We bought a ridiculously expensive bed (by my standards, but it was better for my husband’s back and skin) so we used the offer of 0% for 3 years. We then paid it off as soon as I got my bonus. If I hadn’t gotten a bonus, we would’ve dipped into savings and/or made big payments for a few months to get it done.
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At least when you went to Disney, it was just two adults. Those gift shops are a lot more dangerous with little ones. Glad you were able to pay off the bed…I’ve never heard of deferred interest before…definitely very shady.
These are all the classics schemes, haha. I love the examples you gave and it is really bad tactics used to fool people. Thanks.
EL @ moneywatch101 recently posted…What Is Finance
Yea, they’re always trying to get one over you.
Great tips. We must always go in as Buyer Beware on all purchases. I will say that as far as buying extended warranties I believe in them for major appliances. The new energy and water saving appliances are heavily computerized and expensive to repair. They also don’t last as long as the appliances made in decades past. Built with engineered timed-obsolescent tech. That said, they are about the only thing I consider buying extended warranties past the manufacturer’s first year on.
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I definitely agree that things don’t last as long as they used too. And I guess heavily computerized things breakdown more easily. If I bought an extended warranty, I’d make sure to read the fine print though. It would be even worse if you pay for the extended warranty and when you go to use it, they cite some clause in the terms which exempts them from paying up.
I had this experience when I bought a product which has a faded expiry date. I had to bring it back to the store and it caused me so much time. I think we as consumers should check this detail before getting products.
Jamie recently posted…Age Isn’t A Barrier To Entrepreneurial Ability
That would be pretty bad if they purposely made the date faded so consumers couldn’t tell what date it was
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Great post, and so true. We consumers have to be constantly on our guard against the subtle ways marketers try to get us to spend unnecessarily. Staying aware is half the battle…..soon it becomes second nature to question why we “want” something. Do we really want it…..or was it being sold to us? Big difference.
Thanks for a good reminder to stay alert!
John
John recently posted…Seven Dangerous Financial New Year’s Resolutions
Buyer beware indeed! Deferred interest has bit me a couple of times in the past, so it’s definitely something to watch out for. I don’t mind so much exiting thru the gift shop, but it sure seem like disclosure is lacking sometimes. Excellent post!
The deferred interest is a really common and unfortunate mistake that a lot of people make. If you have the money (or will have it) before the interest comes due than I think it is a great option, but for most I think it is not.
I recall my husband purchased a PS4 (back when they were the latest thing) and a t.v using a store credit card that offered 0% interest for 1 year. He “forgot” to talk to me about it before making the purchase and I was not impressed. Even though we were not as money conscious than as we are now, I was determined that we pay it off within the year. We managed too but I would not recommend this option to anyone unless they have a sure plan to get it paid off. Never again.
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Glad you paid it off within the year! It really is deceptive for retailers to make it sound like there is no interest for the first year. I guess it’s in a fine print!