Sofa interest free credit

Robin66

Hi, I bought a sofa today and although I could afford to pay for it upfront I decided to go for 4 years interest free finance because there seems to be no downside. Interest free finance seems to be offered by all the big sofa players on everything in the shop equally. Can anyone explain to me how this business model works? There are some pretty old posts where people claim that the real finance cost (APR 30%) is built into the headline cost. Therefore they claim that if you take finance the store only gets ~50% of the sale price, the other 50% is taken by the finance provider (barclays in this case). However I find this hard to believe because the store manager seemed indifferent to whether I paid upfront or took finance. If taking finance meant that he was only getting half of the sale price then I'd expect his heart to sink when I went for finance and I'd expect him to quickly offer a discount to persuade me to pay him the full whack.

Any ideas?

[Deleted User]

It's based on those kindly souls who don't clear in full before the end of the period or miss payments and lose the promo rates, hence paying for everyone else.

Robin66

Right, that makes much more sense

jonesMUFCforever

Robin66 wrote: »

Right, that makes much more sense

Did you compare prices between your high street national retailer and say a local independent shop?

There is nothing for nothing.

SeanG79

Essentially the retailer pays the finance costs on the 0% offers, but nowhere near the 30%APR mark, usually it is nearer to 9.9% APR.

The finance option is built into their business model. You will find you might be able to negotiate a lower cash price from the retailer.

Robin66

jonesMUFCforever wrote: »

Did you compare prices between your high street national retailer and say a local independent shop?

There is nothing for nothing.

I admit that I did not. I went to a couple of retail parks and compared Dfs vs Scs vs furniture village etc.

Robin66

SeanG79 wrote: »

Essentially the retailer pays the finance costs on the 0% offers, but nowhere near the 30%APR mark, usually it is nearer to 9.9% APR.

Ok now I have 2 different answers both of which sound plausible. Or it could be a combination of the two: 10%APR built into the retail + financiers profit when people start defaulting and losing the 0% rate.

I didn't try to negotiate a cash price. I'm still surprised then that the store manager didn't try to offer me an upfront discount because I made it clear that I was able to pay the full amount and it'd ~double his profit margin if he dissuaded me from the finance option

SeanG79

The sales person is unlikely to offer you a discount if you don't ask. Many sales people have incentive's to promote the finance.

There are 2 prominent finance options, firstly the 0% offer over whatever period, which you have described. the second is a "buy now pay later" type offer, where you get to pay over usually 3, 6 or 12 months interest free (not normally more than 12 months). If you fail to repay during the 0% period the interest rate then converts to a much higher interest rate. This is not a default though, it is still part of the original agreement, but often the interest is back-dated.

superbigal36

I can support the point that paying upfront does generally not generate any discount in DFS & SCS etc.
They will probably discount the added extras they try to promote.

The actual cost of the sofas interests me.
As an example say a 3 seater is £999 you often find the 2 seater is £989 & the 1 seater £979
Most people are unable to furnish their living rooms with multiple 3 seaters so the pricing model holds up.
Makes for fun when winding up salesmen.

Robin66

I assume the marginal cost of making the sofa a bit longer isn't that great anyway. A lot of the work is in the arms which is the same for a 4-seater or a single seater.

I was buying a 3 and a 4 seater. I avoided all extras and didn't go for a pouffe. The pouffes seem really expensive for what you get relative to the sofa. I guess these have a much higher mark up.

JReacher1

It's all about risk. The credit company charges DFS for offering the 0% finance but the risk of the debt is the responsibility of the credit provider. So for example if you decide to default on a £2k loan DFS don't care as they've got the money. It's the credit company who deal with it.

DFS can't offer discounts for cash purchases as it is in the contract with the finance company that they have to offer parity for the credit option with all other payment methods.

Barclays only make money if the customer takes credit so they only provide the facility to DFS if there is a contractual arrangement that doesn't encourage customers to pay by cash as opposed to credit.