Vendors Offering Financing - Do You Support It?

[ca1ore]

I take advantage of zero financing (mostly Home Depot) every now and then. Why not! 24 months to pay of off while capital earns elsewhere (well, did, until this month).

 

[fish farmer]

I don’t think it’s wise to finance any hobby items. House, car sure you need those. Maybe even a new bed. Beyond that.. Nope

Do you really NEED at house, you can always rent and depending on where you live public transportation can work for many needs.

 

[NS Mike D]

All roads in personal finances lead back to cash flow. If one has a well thought out budget that is based on solid rules of finance, then if a hobby purchase fits within their discretionary spending, they is no problem. Obviously interest rates affect this, but if the monthly payments are within the budget, then if you want to pay extra (interests) for enjoyment now, then fine.

Store financing comes with some traps. Often the credit line is the amount of the purchase. This limits (or close to limits) out the card and that can drag down your credit score (look up Credit Utilization Rate how this works with FICO). As a general rule, never carry a balance more than 30% of your credit line.

Also, before you ever take out a credit line, it's important that you totally understand the fees. These are usually buried in the fine print. For folks with less than good credit scores, the lines for which the qualify have buried fees that work out to 30% of the credit line whether or not you use the card. These are often split into both annual and monthly fees and they can also include automatic increased in the credit line with corresponding increase in fess.

Most people do not understand the nuances of credit and the banks rely on this to get their business. No doubt it's why americans carry nearly $1trillion in credit card debt while most have little to no savings.

When I was in banking, I used to quip "never finance a depreciating asset."

 

[Victor_C3]

It’s clearly good for vendors whose bottom line is about selling more product. Whether or not it’s good for customers is a different question altogether.

We’re all adults here. It’s up to you individually to determine whether or not financing is a good idea for you (which it probably isn’t).

 

[trmiv]

When they run zero interest promos sure.

I was saving for a few things, but MD ran a zero interest promo the other day so I bought the stuff I was waiting for.

same thing with my Reefer 350. I had the money in the savings, but they ran a zero interest for 12 months promo so I bought it with that and paid it off over 12 months instead of paying cash.

 

[mike550]

I'm curious how/why the stores are doing this. Are they really generating more sales through financing? Are they really acting as the "lender" or have they sold off the financing to a third-party and in exchange they receive 80% (?) of the sale price up front?

To the question from the OP. I'm in the "don't carry debt" group to start -- unless the debt makes sense like a mortgage. I would also take on cheap debt if I can then use the money and get a higher rate of return -- think loan to buy rental property.

As to financing a hobby, that's not something that I personally would do. The very limited exception might be 0% financing on some big ticket item. But this also gets reported to the credit agencies so keep that in mind too.

 

[windemerejack]

I think its about time people stopped worrying and criticising how, where, and when people spend their own money.
It is just a different way of paying for your goods, whether aquatic or not, nobody is holding a gun to your head and saying you must purchase this item through finance, you have a choice of doing it through finance or not, Its your money its your choice, it doesn't affect me or you one way or the other, the only person it can affect is the purchaser but like I say they have a choice how to spend their own money.
Its a good thing because it offers more choice.

 

[EMeyer]

People finance shiny new cars that are every bit as frivolous as a fish tank. No one needs to spend more than a few k on a car, they choose to do so for asthaetic reasons.

I don't use these services but just saying, it's pretty much the same thing. Up to each how to best spend their own money.

 

[Tuffyyyyy]

I go back & forward on financing tanks and equipment, though I usually lean towards no. Financing coral is the dumbest thing I've seen in a while. I've seen people bring up 0% financing but typically the people in these situations aren't getting those rates. At some point consumers need to be protected.

 

[Jedi Knghit]

All roads in personal finances lead back to cash flow. If one has a well thought out budget that is based on solid rules of finance, then if a hobby purchase fits within their discretionary spending, they is no problem. Obviously interest rates affect this, but if the monthly payments are within the budget, then if you want to pay extra (interests) for enjoyment now, then fine.

Store financing comes with some traps. Often the credit line is the amount of the purchase. This limits (or close to limits) out the card and that can drag down your credit score (look up Credit Utilization Rate how this works with FICO). As a general rule, never carry a balance more than 30% of your credit line.

Also, before you ever take out a credit line, it's important that you totally understand the fees. These are usually buried in the fine print. For folks with less than good credit scores, the lines for which the qualify have buried fees that work out to 30% of the credit line whether or not you use the card. These are often split into both annual and monthly fees and they can also include automatic increased in the credit line with corresponding increase in fess.

Most people do not understand the nuances of credit and the banks rely on this to get their business. No doubt it's why americans carry nearly $1trillion in credit card debt while most have little to no savings.

When I was in banking, I used to quip "never finance a depreciating asset."

Most of the time these 0% interest credit offers are actually deferred interest. If you fail to pay it off before the term expires, you get hit with 20-30% interest accrued over the life the term.

 

[ddrueckh]

I guess I view these financing options as worse than credit cards...higher interest. Maybe that was a wrong assumption? I didn't know that they sometimes offer 0%. I just hate seeing people make use of high interest options for purchases. If you use a credit card and pay it off every month...that's not a bad thing. You can even earn points/money that way. But if you don't pay it of every month and pay interest...that's bad news.

 

[NS Mike D]

I'm curious how/why the stores are doing this. Are they really generating more sales through financing? Are they really acting as the "lender" or have they sold off the financing to a third-party and in exchange they receive 80% (?) of the sale price up front?

To the question from the OP. I'm in the "don't carry debt" group to start -- unless the debt makes sense like a mortgage. I would also take on cheap debt if I can then use the money and get a higher rate of return -- think loan to buy rental property.

As to financing a hobby, that's not something that I personally would do. The very limited exception might be 0% financing on some big ticket item. But this also gets reported to the credit agencies so keep that in mind too.

It does increase sales and they are typically affinity deals, meaning that they are not the the lender but rather a marketing partner for the underlying bank who pays the store a fee arrangement

Some large stores used to set up their own bank and hire a credit card bank to run the operations, They would sell off the cards to wall street (ABS) to generate more cash to lend and generate profits to boost flat retail sales.

 

[NS Mike D]

I guess I view these financing options as worse than credit cards...higher interest. Maybe that was a wrong assumption? I didn't know that they sometimes offer 0%.

depends on the store and your credit history. 0% is attractive but if the credit limit is the same amount as the purchase, that could drag down your credit score (see my earlier post)

 

[trmiv]

Most of the time these 0% interest credit offers are actually deferred interest. If you fail to pay it off before the term expires, you get hit with 20-30% interest accrued over the life the term.

While this is true, with the affirm zero interest ones the minimum monthly payments will pay it off in the allotted time. When I bought my Reefer 250 deluxe on zero interest with affirm, the price was $2459 and they set the payment at $204.91 (give or take a cent) so it paid it off fully in 12 months with no interest. So I just set it to auto pay every month whatever their minimum payment was and in 12 months it was done.

 

[NS Mike D]

Most of the time these 0% interest credit offers are actually deferred interest. If you fail to pay it off before the term expires, you get hit with 20-30% interest accrued over the life the term.

good point. The devil is in the details in these credit lines (as in most credit lines).

If I haven't made it clear, always read the fine print and walk away for a store line if you don't have the time to read the fine print.

 

[NS Mike D]

While this is true, with the affirm zero interest ones the minimum monthly payments will pay it off in the allotted time. When I bought my Reefer 250 deluxe on zero interest with affirm, the price was $2459 and they set the payment at $204.91 (give or take a cent) so it paid it off fully in 12 months with no interest. So I just set it to auto pay every month whatever their minimum payment was and in 12 months it was done.

if the credit line was $2500, and it is a revolving credit, you just put a $2500 credit at 100% Credit Utilization Rate on your credit report. FICO views high CUR as a signal that you are using credit to make ends meet. Depending on the other credit history this could drive your credit score where it might trigger other cards to increase your rate, raise the premiums on insurance policies etc.

FICO does not discern between making ends meet using your credit cards and a store promotion card.

Very few people ever ask if the store line is a revolver or an installment loan or knows how it will affect their credit score.


fiwiw, I am not against store credit lines. (I have a barclays/apple line for my business), it's the uneducated consumer I wish to enlighten so they can be sure if the credit line is good for them.

 

[albano]

I have no problem with people spending THEIR money, anyway they want... the problem is spending $ that they don’t have yet and may never have.
After over 40 years in the car business I have seen customers come in that needed a car right away... why... because their other car was just repo’d!

Ridiculous, but some lender would loan them more $!

 

[trmiv]

if the credit line was $2500, and it is a revolving credit, you just put a $2500 credit at 100% Credit Utilization Rate on your credit report. FICO views high CUR as a signal that you are using credit to make ends meet. Depending on the other credit history this could drive your credit score where it might trigger other cards to increase your rate, raise the premiums on insurance policies etc.

FICO does not discern between making ends meet using your credit cards and a store promotion card.

Very few people ever ask if the store line is a revolver or an installment loan or knows how it will affect their credit score.


fiwiw, I am not against store credit lines. (I have a barclays/apple line for my business), it's the uneducated consumer I wish to enlighten so they can be sure if the credit line is good for them.

I didn’t notice any major impacts to my credit score at that time. But my scores are high enough that I don’t really concern myself with fluctuations due to things like that. I just check it when my monthly credit karma thing comes in and move on. I had the cash in savings to pay for the tank, but with zero interest I’d rather just leave it there and pay it off over 12 months.

 

[fish farmer]

if the credit line was $2500, and it is a revolving credit, you just put a $2500 credit at 100% Credit Utilization Rate on your credit report. FICO views high CUR as a signal that you are using credit to make ends meet. Depending on the other credit history this could drive your credit score where it might trigger other cards to increase your rate, raise the premiums on insurance policies etc.

FICO does not discern between making ends meet using your credit cards and a store promotion card.

Very few people ever ask if the store line is a revolver or an installment loan or knows how it will affect their credit score.


fiwiw, I am not against store credit lines. (I have a barclays/apple line for my business), it's the uneducated consumer I wish to enlighten so they can be sure if the credit line is good for them.

That's good information. I'm always scratching my head with the credit score thing...great credit so I can put more stuff on credit....I don't want more debt, LOL. If you don't use credit you are an unknown risk to lenders.

I even cosigned on a loan with my wife last year and my credit score can't get much higher.

 

[NS Mike D]

I didn’t notice any major impacts to my credit score at that time. But my scores are high enough that I don’t really concern myself with fluctuations due to things like that. I just check it when my monthly credit karma thing comes in and move on. I had the cash in savings to pay for the tank, but with zero interest I’d rather just leave it there and pay it off over 12 months.

sorry, I wasn't clear when I said it could lower ones credit depending on other factors. My comment wasn't meant to be directed to you, but rather to illustrate the potential unintended consequences for readers who come across this thread.