Kids braces: When 0% financing is really 22.9% financing

[Sid Hoffman]

So one of my kids needs braces and I've gotten quotes from two orthos now.  They seem criminally expensive, but I'm sure the prices are typical, or maybe even cheap compared to what other people pay.  My post isn't about the total cost though, it's the way they structure it.  Here's an example from my latest quote:

Total cost for 12-18 months of treatment: $3850
Courtesy discount for payment in full: 8%, resulting cost: $3542 (which I realize isn't precisely an 8% discount)

Zero interest payment plan:
$1000 down payment by start of treatment
$2850 / 12 / 2 (semi-monthly payments) = $119.00 per payment

So they claim they offer zero interest payments, but right from the start you can see that what they are really doing is requiring pre-paid interest to the tune of $308: the difference between 3542 & 3850.  Further, even if you make payments, you need to do $1000 down anyway.  I used this calculator which lets you do a semi-monthly loan payment and inputted the following information:

22.9% interest rate
12 month term
$3542 total loan amount
$1000 down payment

That's the real deal here.  Since $3542 is the "paid in full" amount and making payments ends up with $3856 repaid, that's what we're really dealing with.  They require a $1000 down payment, so you're actually taking out a 22.9% interest loan on $2542 and even with semi-monthly payments it still accrues $314 worth of interest over the 12 months it takes to pay it off.

Does anyone else ever bother to do the math on this stuff?  I mean, I can probably pay it off in full from savings, but even if I didn't have the money, 22.9% interest is so freaking high that I would literally be better off putting it on a 12.9% interest rate credit card and taking a year or even longer to pay it off.  I'll bet that a ton of people just hear "Oh, zero percent interest, I'll do that!" and effectively sign up for that 22.9% interest payment plan instead.  Does anyone on this forum bother to do the math on things like this?

[ms]

I paid for my daughter's in full by putting it on a line of credit. Way cheaper than their plan and they threw in an electric toothbrush with the deal.

I'd have to go and dig out the paperwork but hers were about five grand. Good times. At least she now has a beautiful smile.

[Jags4186]

Always do the math :-)

Tip for the common folk: anytime a company quotes a monthly cost vs a total cost you're getting scammed.  Make sure you do the math.

[Sid Hoffman]

I'd have to go and dig out the paperwork but hers were about five grand. Good times. At least she now has a beautiful smile.

Yeah I think originally his was $5800 or something when he was 12.  Long story on that whole mess, but I am effectively my son's caretaker for anything medical or dental related now, not his mother - my ex-wife.  They quoted 12-18 months on the grounds that his teeth are still much closer to being in alignment than they were when he was 12 and had never had braces before.

Also good advice on being suspicious of any monthly payment plan.  I know when I first got married years ago we purchased about $3800 in furniture on a 0% plan, but the catch with that one was that you had 12 months to pay it off in full or else they accrued interest for the WHOLE balance, regardless of how much still remained.  So if you hit the 13th month and only have $200 left, too bad, they tack on $908.20 in interest because ($3800 * 23.9%) the math says so.  That one, however, really was 0% for me since I had it paid off before the 12 month deadline.  I can only guess at how many outraged phone calls they get when people suddenly see their outstanding balance shoot up by $900 or more in a single month, especially if they were close to paying it off.

[Guizmo]

I did invisalign and I thought I would get a discount if I paid in full but I didn't so I took the 0% financing.

[Bob W]

Orthodontic prices are negotiable,  if you're nice and make a compelling arguement?.   Always ask for a discount.

[bigalsmith101]

Also good advice on being suspicious of any monthly payment plan.  I know when I first got married years ago we purchased about $3800 in furniture on a 0% plan, but the catch with that one was that you had 12 months to pay it off in full or else they accrued interest for the WHOLE balance, regardless of how much still remained.  So if you hit the 13th month and only have $200 left, too bad, they tack on $908.20 in interest because ($3800 * 23.9%) the math says so.  That one, however, really was 0% for me since I had it paid off before the 12 month deadline.  I can only guess at how many outraged phone calls they get when people suddenly see their outstanding balance shoot up by $900 or more in a single month, especially if they were close to paying it off.

My wife and I bought new MacBooks this year. (Our computers were 7 years old, spare the face punches). Apple offers a 0% 12 (or 18 month?) offer if you sign up for their Barclays card offer. I applied, got the card, and read the fine print. If full payment is not received within the time frame, all previously accrued interest is tacked onto the bill. WOAH. Interest rate is 18.9% or something hideous like that. Minimum payments are less than half of the $168.15/mo I set up to automatically pay in order to beat the deadline by a month. I can't imagine how many people must get the shaft from that!

[Sid Hoffman]

Orthodontic prices are negotiable,  if you're nice and make a compelling arguement?.   Always ask for a discount.

Yeah, this was the 2nd place I got a quote from, and that price is after they knocked a bunch off due to negotiating.  I still have one other place that I'd like to verify their true cost with.  I know my son hates getting dragged around for exams but if it's something that can save me $500-$1000, then that's just how it has to be, unfortunately.

[shotgunwilly]

Also good advice on being suspicious of any monthly payment plan.  I know when I first got married years ago we purchased about $3800 in furniture on a 0% plan, but the catch with that one was that you had 12 months to pay it off in full or else they accrued interest for the WHOLE balance, regardless of how much still remained.  So if you hit the 13th month and only have $200 left, too bad, they tack on $908.20 in interest because ($3800 * 23.9%) the math says so.  That one, however, really was 0% for me since I had it paid off before the 12 month deadline.  I can only guess at how many outraged phone calls they get when people suddenly see their outstanding balance shoot up by $900 or more in a single month, especially if they were close to paying it off.

My wife and I bought new MacBooks this year. (Our computers were 7 years old, spare the face punches). Apple offers a 0% 12 (or 18 month?) offer if you sign up for their Barclays card offer. I applied, got the card, and read the fine print. If full payment is not received within the time frame, all previously accrued interest is tacked onto the bill. WOAH. Interest rate is 18.9% or something hideous like that. Minimum payments are less than half of the $168.15/mo I set up to automatically pay in order to beat the deadline by a month. I can't imagine how many people must get the shaft from that!

That's how all credit card sign up, 0% introductory offers and 0% "supercheck" offers work.  I too wonder how many people get screwed by that.   

[Eric]

Total cost for 12-18 months of treatment: $3850
Courtesy discount for payment in full: 8%, resulting cost: $3542 (which I realize isn't precisely an 8% discount)

Speaking of always doing the math, how is this not precisely an 8% discount?  :)

[Sid Hoffman]

That's how all credit card sign up, 0% introductory offers and 0% "supercheck" offers work.  I too wonder how many people get screwed by that.

I would not say it's how ALL of them work.  Actually I've had probably 12 different credit cards and none of them retroactively charged interest except the special financing through the furniture store.  Every other 0% offer I've seen either has an up-front fee of a couple percent to do the balance transfer, or is just an honest 0% on purchases and they don't start accruing interest until after the promotional period is over.

I say this having done quite a lot of them from my pre-mustachian days.  I carried upwards of $20,000 in credit card debt at my worst and was regularly doing balance transfers, writing credit-card checks to pay off other cards, and other tricks over a period of 3-4 years.  All of the offers from the credit card companies themselves were legit and only charged interest on a go-forward basis once a promo period ended.  I've honestly only heard of retailers such as shopping mall stores and furniture stores playing the retroactive interest game.

Total cost for 12-18 months of treatment: $3850
Courtesy discount for payment in full: 8%, resulting cost: $3542 (which I realize isn't precisely an 8% discount)

Speaking of always doing the math, how is this not precisely an 8% discount?  :)

Shoot, I made several updates to the original thread to fix wording and math but missed that one.  Yeah that isn't where the error is; the error was on the other side, where they say that it was $3850 based on $1000 + ($119*24), which is actually $3856.  What you see in my original post is wording from when I was trying to figure out how to explain that $3542 isn't 8% off $3856, which is the real total you pay if you do the 0% financing.  You're correct that 3542 is indeed 8% off 3850, but 3850 isn't the true price anyway.  I'm not sure how best to even re-word the whole thing to show which parts are errors and which parts are just financing tricks, but it's close enough.

[Rage]

My wife and I bought new MacBooks this year. (Our computers were 7 years old, spare the face punches).

OT: I've noticed that people who ask you to spare the face punches usually deserve face punches.

[Elderwood17]

Hey, how can you go wrong with a zero interest rate plan??  Let's not let something as worthless as math mess it up.  In fact, zero interest payment plans make things almost free.  At least according to one of my BILs who had to buy a new big screen TV because "you almost can't afford not to take advantage of the zero interest" offered. 

[partgypsy]

So one of my kids needs braces and I've gotten quotes from two orthos now.  They seem criminally expensive, but I'm sure the prices are typical, or maybe even cheap compared to what other people pay.  My post isn't about the total cost though, it's the way they structure it.  Here's an example from my latest quote:

Total cost for 12-18 months of treatment: $3850
Courtesy discount for payment in full: 8%, resulting cost: $3542 (which I realize isn't precisely an 8% discount)

Zero interest payment plan:
$1000 down payment by start of treatment
$2850 / 12 / 2 (semi-monthly payments) = $119.00 per payment

So they claim they offer zero interest payments, but right from the start you can see that what they are really doing is requiring pre-paid interest to the tune of $308: the difference between 3542 & 3850.  Further, even if you make payments, you need to do $1000 down anyway.  I used this calculator which lets you do a semi-monthly loan payment and inputted the following information:

22.9% interest rate
12 month term
$3542 total loan amount
$1000 down payment

That's the real deal here.  Since $3542 is the "paid in full" amount and making payments ends up with $3856 repaid, that's what we're really dealing with.  They require a $1000 down payment, so you're actually taking out a 22.9% interest loan on $2542 and even with semi-monthly payments it still accrues $314 worth of interest over the 12 months it takes to pay it off.

Does anyone else ever bother to do the math on this stuff?  I mean, I can probably pay it off in full from savings, but even if I didn't have the money, 22.9% interest is so freaking high that I would literally be better off putting it on a 12.9% interest rate credit card and taking a year or even longer to pay it off.  I'll bet that a ton of people just hear "Oh, zero percent interest, I'll do that!" and effectively sign up for that 22.9% interest payment plan instead.  Does anyone on this forum bother to do the math on things like this?

I still don't see how saying this is an 8% discount for prepaying is incorrect. They are saying 3856 is the amount you would pay if you do it in installments. You pay a lesser amount if paid in full.