Applying the "time value of money" to real life
When a $2,300 LCD TV costs $1,600 with no-interest financing and sales

I have never used no interest financing on a consumer purchase. No interest financing is generally a scam to get buyers signed up for a store-line of credit. The consumer forgets to pay a bill or - much worse - forgets to make their payments by the date that the store begins charging interest, resulting in huge profits for the seller and inflated payments for the consumer.

However, a recent flyer from Circuit City caught my attention. In this case I have had my eye on the Sharp Aquos 42" LCD television (LC-42D62U) . Sharp was the first manufacturer of LCDs , and they have by far the clearest, brightest, and enjoyable LCD panels. It's also has a 1080p native resolution, so it will display full-HD, works well as a PC monitor, and is future-proof (well, as future-proof as you can get in consumer electronics).

 Circuit City's advertised price was $1,889.99, a $410 sale off the normal price of $2,299.99, and they were running a $150 coupon on TVs over $1,500, bringing the cost down to $1,739.99. Not only that, they were offering no interest financing until 2010. Of course, that comes with a massive section of small print.

So, if we make minimum payments until December 2009 and them pay off the TV, what would be the actual cost in today's dollars? Circuit City requires 1% or $10 minimum monthly payments, so we'll say $17.40 minimum per month. There would be 32 months before the December 31 payment of $1,183.19 was due (Total Cost=$1,739.99-($17.40*32)). While the current 30 day T-Bill, or risk-free rate (RFR) of return, is over 5%, a 30-day CD at the local bank is 3.6%, so I will use that as the discount rate, or our risk-free rate of return. This is the return you could earn on that money each month if you invested it risk free.

So we have the following:

N=32 months
RFR= 3.6%/12 (divide by 12 to convert to annual)
PMT= $17.40/mo
FV= $1,183.19

As a result of their no interest financing, the cost of the TV in today's dollars is actually $1,605.19. No interest financing saved us about $100 off the sale price. Our final total is more than 30% off the full retail price. If I buy it in NH instead of MA, I will also save the 5% sales tax charged by "Taxachusetts".

If you are diligent and able to pay off the total prior to 2010, it is a deal sweetener. If you fail to pay it off, though, the interest on the outstanding balance will quickly nullify your savings. The moral? Pay off your balance, and if you cannot, skip the financing.

Why Circuit City?
Circuit City's prices are almost always competitive with other large brick-and-mortar resellers, and their return policy outstrips every other electronics retailer I know. There is no restocking fee on big screen TVs, and you can return for any reason within 30 days (it must be tough at Super Bowl time). As a result, I tend to go there for large electronics purchases when they have the model I'm looking for rather than gambling on a cheaper internet-only provider. I don't want dead or stuck pixels on my new LCD and no place to exchange it.

I am in no way paid or compensated for my endorsement of Circuit City. I am a former employee (nine years ago). I also shop at Tweeter, Best Buy, and online depending on the item and the deal.