The ad screams: BUY NOW AND PAY NOTHING UNTIL NEXT YEAR! NO INTEREST! Such promotional campaigns have appeared with increasing frequency in recent years often offered by companies such as Best Buy and Baileys Furniture. They may offer 6 months or more of interest-free loans. For purchases made in November or December, they may offer 14 months with no payments or interest, thus permitting purchasers to defer any cash outlays until early next year. However, if full payment is not made by the specified date, interest is typically due from the original date of purchase, often at 18 to 24 percent.

If a company permits customers who purchase merchandise in December of the current year to defer payment until January of the next year, how does the company pay its bills in the meantime? Do you think the retail company extends credit itself, or might it enter into some type of arrangement with a financial institution?

What type of credit arrangement do you think might be used?