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When making large purchases, consumers better understand the terms of their finance contracts. Otherwise, that sofa or entertainment system could end up costing them hundreds of dollars more.

The finance plans we’ve all heard about on the radio and on TV — such as “No payments until the year 2001,” six months same as cash and zero percent financing for 12 months — don’t necessarily mean free cash.

Careful and smart consumers can use the plans to pay for their purchases over time and at no additional cost. Meanwhile, the cash they would have spent on the item up front is free to earn interest in a bank account or other investments. However, shoppers must understand how these finance plans work.

Here’s a look.

Same-as-cash financing means you have a certain amount of time, such as 30 days, 90 days or six months, to pay for your new sofa.

Zero percent financing for a certain period of time means the same. Interest rates don’t start until that time is up.

You might not have to make any payments during that time. However, there is a risk to delaying payment. If you don’t pay the bill in full at the end of the term, you could be required to pay interest on the entire amount financed, not just the remaining balance.

Consider this example: You buy a new dining room table and chairs for $1,000 and finance it with 12 months same as cash. Say you don’t make any payments until after that period is up. The price, excluding sales tax, immediately jumps to $1,210, assuming the typical store interest rate of 21 percent.

If you can’t pay for the furniture when the same-as-cash period ends you’d be better off putting the purchase on your credit card, where the highest interest rates of about 18 percent still beat store rates.

The best way to insure that you don't pay more than the purchase price and tax is to make regular payments and to pay off the purchase when the promotional period ends.

Make sure to ask the sales clerk to explain the terms of the financing contract. They can work in many different ways and it is difficult to anticipate each scenario.