So Called "0%" financing deals

[DebbieL]

Disneysteve is right (he responded about 0% financing on another thread). There is no such thing as 0% financing - they have built (disguised) the interest into the price (they aren't in the game of giving anything away). If you can pay cash today, you can get a discount. If they won't - then you are being ripped off and should go elsewhere.

PS - On a 3 years 0% interest deal - they've built a full 3 years worth of interest into the price, so if you pay it off in 6 months, you've paid 3 years worth of interest on a 6 month loan. If you take the 3 years are even 1 day late to pay it off, then they add an "extra" 3 years worth of interest on (telling you that it is the interest back-dated to when you bought the item - when actually that "interest" was already factored into the sticker price). It is a good deal for THEM.

[disneysteve]

I think the only time 0% is legitimate is a 0% credit card. That way, the price you pay for the item isn't influenced by how you are financing. As long as you follow the CC rules and make your payments on time, you do truly get 0% financing.

That said, sometimes 0% is the better deal. A few years ago when my daughter got braces, the orthodontist offered either 5% discount or 0% interest payment plan. I figured out that the discount wasn't big enough to make putting out all the money upfront worth it to me.

[DebbieL]

I agree about the 0% credit card (which I've never found one here in Canada yet - the best I ever got was 0.9% - but that was years ago and they don't offer anything that good anymore), but I think the furniture companies, etc, really sucker people in with these so-called "0%" financing deals. They have figured out the interest and added it into the price.

[disneysteve]

I think the furniture companies, etc, really sucker people in with these so-called "0%" financing deals. They have figured out the interest and added it into the price.

Absolutely. Not only do they charge more for the furniture, but they know that a certain percentage of buyers will miss the payments and end up paying all of the interest anyway. Plus, just as with the car ads, not everyone qualifies for 0% financing. You must have good credit. So the ads draw people into the stores. They shop and pick out the items they want. Only then does the credit check get done and tell you that you don't qualify. Of course, most folks buy anyway and pay more interest.

[tripods68]

I agree Steve.

We took advantage of 0% financing in the past. For instance, we purchased new Furnitures for our brand new home, worth 8K about 6 years ago. It carried 0% for 18 months financing that must be paid in full. If you cannot pay the entire balance before the promo ends, all interest accrual reverts back to the original purchase date. And that interest rate is usually at the higher rate @ 18 to 24 percent. We paid it off in 8 months.

I have no problem with bank charging interests so long you understand that you agreed to pay it back. After all, the money that they lend you are also borrowed money.

[DebbieL]

Tripods68,

The point is, the furniture deals aren't really 0% financing, even if you pay them off before the due date. The interest is built into the "price". If you go over the due date, then you will be charged interest dated back to the purchase date, but really it is a double interest since the interest was included (hidden) in your original purchase price. There is no such thing as 0% interest (with the possible exception of the 0% credit cards). Trust me, the companies have built interest into the asking price on those 0% interest offers.

[tripods68]

It is unfathomable for me to think all 0% financing deals in furnitures operate like this, especially if the furnitures uses a financing lending company like Wells Fargo or Citi Bank. Mine was Citi Bank.

Merchants banks makes money based on the number of transactions/volumes, amount of purchase, monthly fees, and availability of credit. Businesses can received discount if they are meeting expected volumes/transactions/purchase amounts per agreement. Otherwise they are charged with regular monthly fees. That's usually pretty high. I'm going by memory here.

I worked with Merchant Banks/banker at Wells Fargo for years. I know merchant dealing with small furnitures/local groceries. Some shops can't make the volume to offset monthly fees so they don't offer financing at all, instead they operate in CASH basis only. So when they say, i'll charged you 50 bucks less for this sofa, they are giving you their "true cost" minus merchant fees.

But if you took their 0% financing for 12 months for example, they will have to add their merchant cost on top excluding taxes. For example, if the merchant cost is $10 a month to buy that sofa X 12 = $120 a year. You are paying their merchant fees.

Now if you go with some big wel- known furniture store where we bought our furnitures, we didn't have to worry about added cost since their volume per transaction is high enough to offset their merchant/financing cost.

Not everyone are crooks! That's why is better to "shop and compare" each time.

[LivingAlmostLarge]

Best Buy. We bought our washer and dryer there at 0% interest 2 years. And we were watching sales for 2 months prior to moving to see what the lowest price was. I caught it when it hit the low of the cycle.

And so I got the 0% interest and a low price. And you can't negotiate with Best Buy.

If we had gone with a small mom and pop maybe. But a national chain? Doesn't happen. Only on damaged goods, but where we were living there wasn't any damaged goods. I wanted a front loader and they were pretty new.

[disneysteve]

Not everyone are crooks! That's why is better to "shop and compare" each time.

I don't think the furniture stores are crooks. They are very clear about what they are doing. Their TV commercials and print ads say, "0% financing for 3 years. 10% discount for cash purchases." Sure, you may have to read some fine print to see that but sometimes it is very clearly stated. I've seen it numerous times. The point being that 0% financing isn't really free if you could pay 10% less with cash upfront.

[maat55]

There is no such thing as free money when buy cars or furniture. It will always be added to the price. You cannot bargain a price then ask for 0% financing.

You will always get the product cheaper with cash up front, than when getting 0% financing. Even desparate sellers will have cash/0% finance pricing.

[LivingAlmostLarge]

Not in some cases. I forgot to mention, I asked the dentist for a cash discount. They said NO.

Why? Because my crown had a prenegotiated price with my insurance company who paid 60%, I was responsible for 40%. They were not going to give me a discount because it would be unethical.

They were offering me 0% financing for 1 year. But for $500 I said no. But if it were $2k maybe?

So how would I get it cheaper? Pay cash and not use insurance?

[poundwise]

And you can't negotiate with Best Buy.

This is definitely not true. I know from first-hand experience, and second-hand accounts, as well that you positively can ask for, and get, a deal at Best Buy, Sears, etc. Particularly if you have cash in-hand.


And 0% may not be 'crooked' but it certainly is safe to say that it is very nearly always much more marketing than substance.

The point being that 0% financing isn't really free if you could pay 10% less with cash upfront.

Bingo.

[LivingAlmostLarge]

Poundwise, what did you negotiate at best buy and sears? What did you negotiate and how much off? What condition?

[disneysteve]

Haggling at Best Buy; How Can We Make This TV Work for You? - Gadgetwise Blog - NYTimes.com

Haggling at Best Buy article

[kork13]

Interesting article, DS... I suppose they must work on commission, if they operate in such a way (car dealer-style predatory sales)...