Cash Rebates, A Profitable Marketing Trap

Cash rebates on consumer credit transactions ought to be a red warning flag marking hidden terms, but instead it acts more like a red cape to a charging bull, enticing the unwary consumer to plunge into financial peril and be skewered.

Rebate transactions rank in the top ten consumer complaints.  In a straight cash transaction, a rebate is merely a nuisance.  Instead of paying the advertised price for an item, the buyer must pay a higher price, fill out some paperwork, and wait weeks to receive a check for the refund.  If the amount is small, the buyer is likely to forget, or lose the receipt, in which case the higher price will stand and the buyer does not receive the advertised discount.

In credit transactions the seller is bundling a cash advance into the purchase price of a consumer item.  The seller collects the entire sum immediately and the lender can begin charging interest as soon as the particular contract allows.  It is apparent that in cases where the seller and lender are the same, significant profit might be realized from charging interest on a delayed cash rebate.

The worst trap occurs when the seller combines a cash rebate with a “no money down, no payments for six months” type of offer that is linked to a big-ticket item a prudent consumer would normally avoid buying. The consumer who falls for the no money down/cashback deal ends up borrowing cash on less than favorable terms while incurring a debt for often overpriced merchandise the buyer didn’t really need in the first place.  You can bet that the seller and the lender have figured in the high rate of default when setting the price of the merchandise and the terms of the loan contract.