Credit card fee by merchant

Doobiedoobiedont

I have just ordered a new 0% credit card with the plan of buying a car with it and then pay it back over a period of time.
The company selling the car said that they charge a 3% fee for using the credit car. I have a few questions

1. What would the fee be for?
2. Whay is it a % and not a flat fee
3. Is there any way to argue against it, for example I am paying 8,000 for the car so the fee is 240 I dont mind paying a processing fee but this is a joke

eskbanker

1. They have to pay their card acquirer company to process CC payments
2. These merchant charges that they have to pay are percentage based, so they'll naturally pass them on on that basis
3. You can try but they're within their rights, provided their charges are reasonable, i.e. if they're not profiteering out of it. If they were surcharging at 10% it would be a different story but 3% is far from unusual - what they actually pay their acquirer will be confidential but could easily be 2%+

dzug1

It isn't a joke - it's a reflection in one way or another of what the CC will charge them for the transaction which will probably be a small flat fee which they absorb and a percentage of the amount which they are not willing to absorb. Whether it's actually 3% is another matter


It's always open to you to negotiate a different arrangement

InsideInsurance

Doobiedoobiedont wrote: »

1. What would the fee be for?
2. Whay is it a % and not a flat fee
3. Is there any way to argue against it, for example I am paying 8,000 for the car so the fee is 240 I dont mind paying a processing fee but this is a joke

Why's it a joke? If its costing them £240 from the fees from their card processor/ merchant bank why shouldnt it cost you the same?

There are many companies involved in processing credit card payments and each one of them is there to make a profit and so charges a fee.

As a quirk of history more than anything else credit card fees are done on a percentage basis (sometimes plus a small amount) where as debit card payments are a flat fee. This is one of the reasons why companies will give you cashback on a debit card but not a credit card

The actual amount the company will be charges varies based on the volume of transactions they put through (number and amount), the level of risk of the business (an online !!!!!! site is much more risky than a supermarket which only accepts chip'n'pin) and ultimately their negotiation skills.

Small companies are often starting off around 3% and massive corporate organisations processing billions can be 0.5% or possibly less.

The fees they charge you are supposed to be proportional to the overall costs of card payments to them. That will include the fee they are charged but also the price of equipment, software, staff training etc.

p00hsticks

Doobiedoobiedont wrote: »

2. Whay is it a % and not a flat fee

All the credit card issuer processing fees that I am aware of are calcualted as a percentage of the transactions for credit card transactions and a flat fee for debit card transactions.

The 'merchant acquirer' who handles the card tranactions for the retailer will also be costing the retailer money.

As eskbanker says, chances are that at 3% they are only covering the actual processing cost to them. not making money out of it.

Ebe_Scrooge

It's very common for garages, in particular, to pass on their surcharges. In fact I've never heard of a garage that doesn't.

But it may well be that this surcharge still equates to a lot less for you than another form of credit, so it's worth it overall. Just do the sums and work out what's the cheapest way of financing it in your particular circumstances.

Doobiedoobiedont

Thanks for the clarity guys. I didnt know the garages had to pay a fee for letting the customer use the card. I am only used to putting small stuff on the credit card in supermarkets and they never charge a fee so didnt realise the supplier had a fee put on them as well.

I still think I got a real good deal as I can pay off the card over 19 months interest free so it works out much cheaper than getting car finance.

eddddy

Doobiedoobiedont wrote: »

Thanks for the clarity guys. I didnt know the garages had to pay a fee for letting the customer use the card.
...

I guess another way of looking at it is: banks (like most businesses) don't do stuff for free. If they're lending you the money at 0% (plus sending you statements, answering your phone calls etc), they have to earn profit from somewhere.

InsideInsurance

Doobiedoobiedont wrote: »

Thanks for the clarity guys. I didnt know the garages had to pay a fee for letting the customer use the card. I am only used to putting small stuff on the credit card in supermarkets and they never charge a fee so didnt realise the supplier had a fee put on them as well.

Unfortunately banks dont do it all just for the love but charge instead. When it comes to commercial banking the fees very quickly add up and almost everything is charged for. For example to deposit cash Barclays charge it's business customers roughly a 1% handling fee

To some companies this is just an operational cost and is built into the price of everything they sell. Plus the actual true cost is more complex to work out, particularly when you consider supermarkets where cash is a valid alternative to plastic. Other companies, if you believe the marketing, think its unfair to load the price for everyone and simply charges extra to those that incur the cost.

giblet10

Before my company started lavishing cars on me, when I had to buy my own, I used to pay no more than £5k and in cash - the garage I bought from took cards but also charged 3% - the sales rep used to justify it as margins are so thin on used cars that if he simply absorbed it his prices would go up and thus making him uncompetitive locally...so in essence if all local dealers agreed to put their prices up to take cards for no fee it would work - not sure the OFT or others are keen on that sort of collusion though..

Ebe_Scrooge

Doobiedoobiedont wrote: »

Thanks for the clarity guys. I didnt know the garages had to pay a fee for letting the customer use the card.

Not only garages, any business will be charged by the card company. The difference with supermarkets is that they're working on a high volume, low profit margin model - the opposite of garages. So the relatively small spend per customer doesn't cost them much per transaction. Added to which, the major supermarkets would rapidly lose customers if they stopped accepting credit cards, whilst their competitors charged similar prices and did accept cards. ( Please, nobody bring up Aldi / Lidl !!! )

A further point - the big chains will often have negotiated lower percentage fees with the card companies, since they do such a large volume of transactions. So their fees will usually be lower than a garage, who does relatively small a volume.