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INTEREST FREE - Is it mis-selling?
CaptainPerfect
Posts: 2 Newbie
in Loans
INTEREST FREE – Is it mis-selling?
There are an increasing number of interest free offers, from sheds, to cars, to bikes, to sofas, to almost anything. There cannot be interest free, borrowing money cannot and never has been free. Surely it can be argued that interest free is a totally false claim, certainly to those who pay in full when ordering it must therefore be a hidden overcharge. This overcharge is probably in the range or 10% to 25%.
Personally, I do not want credit, which is why I feel I am restricted in where I am able to spend my money. Unless I can receive a considerable discount when interest free is the only offer I must be at a disadvantage and overpaying. If someone buys an item for £1,000 interest free, the company selling it will take the order and then process the sale through to a finance company. The company will then receive less that £1,000 from the finance company for the item purchased. Therefore if I pay £1,000 by debit card I have overpaid. The reality is that the finance company cannot handle the service for no charge. The interest is therefore a hidden charge that cash buyers suffer.
Many companies, from double-glazing to bikes have an agreement with someone like Barclays Finance. When asked for a discount for cash they all claim that it is an interest free loan, therefore there cannot be a discount. Which in my mind is mis-selling as there cannot logically be interest free money. Someone somewhere must be paying for it and this is not explained. Pretty far from it actually, from the incorrect and varied denials I have received.
Recently I asked for brochures for a Honda and was told that they now had an interest free loan on any new car. I then objected saying that Honda simply couldn’t afford to carry the financial burden over several years for literally billions of pounds worth of cars. Therefore I couldn’t consider buying a Honda unless I received a substantial discount. Their response was : The sale is passed to Honda Finance, which is the same company, therefore it is interest free. Clearly this cannot be. The dealer for a start is not Honda. The value of the car that they sell will be passed to Honda Finance who will then deduct from the buyer on a monthly basis. Granted if it is a £30,000 car then the buyer will only pay £30,000 for the length of the loan. However, Honda Finance have offices, staff and other overheads that need to be paid. Therefore the car dealer selling the car will not bank and retain £30,000 but a figure considerably less. Anyone paying the £30,000 on receipt of the car is therefore being overcharged by the amount of the finance by comparison to the person who takes the £30,000 as a loan.
Earlier in the year I asked for a price for a laminated fire door. It was offered as interest free by one company and was around £1,500. Again, as I do every time interest free is claimed, I said that there is no such thing as interest free. After some discussion the salesman admitted that they did pass on to Barclays the total sales value but under a certain level it was not worth their while. There was therefore a tendency to lift the sales value above their lower limit so that they could pass the debt on. There were also different levels of interest depending upon the loan value. A lower interest rate applied to goods over £5,000 and so on. So not only is the possibility to make say a £800 or £900 sale the value could be increased to £1,001 or higher to get the salesman extra commission on the loan and to sell the debt on. The person paying on order will be hit with a double charge because they do not reduce the quotation for cash. If they proceed they will suffer the inflated cost and the interest charge. It is quite possible but I do not know if it is the case that the selling companies may have an agreement with the loan companies to transfer all sales above (say) £1,000 to the finance company. Basically this is what used to be selling their invoices. Lower values they could no doubt handle in their sales ledger. Companies short of cash flow appear to increase their quotations to ensure the majority of their invoices are passed to finance companies. There is clearly an incentive to do so, to the disadvantage of some customers. Regarding the I purchased exactly the same item from another company for a little less than £1,200 a saving of over £300.
The conception of interest free is that the selling company is providing a product and an extended period of payment at no charge. No commercial company can afford to carry such a huge debt. Simple maths must display that. If a car sales company offers interest free over three years and sells 1,000 cars at £30,000 in one year, by the beginning of the fourth year they will have a debt of £90m and received back £30m. All things being equal, they will then for ever be carrying a debt of £60m. The only way to reduce that debt is to stop interest free or close down. For any company accountant to propose to increase debts by the value of three, or four or five years turnover is incomprehensible. Therefore there must be an interest charge, it cannot be interest free. Late payments are a problem that all businesses have, so it is inconceivable that any business could give three years credit when they consider an invoice overdue at 28 days.
It could be suggested that basically these people are mis-selling by claiming interest free but putting anyone who pays the total with the order to a disadvantage. They have paid an interest charge and have lost the opportunity cost of the ownership of their money. It is surely unfair to those people who purchase anything that is claimed to be interest free but pay the full ticket value? Logically, there cannot be interest free loans.
There are an increasing number of interest free offers, from sheds, to cars, to bikes, to sofas, to almost anything. There cannot be interest free, borrowing money cannot and never has been free. Surely it can be argued that interest free is a totally false claim, certainly to those who pay in full when ordering it must therefore be a hidden overcharge. This overcharge is probably in the range or 10% to 25%.
Personally, I do not want credit, which is why I feel I am restricted in where I am able to spend my money. Unless I can receive a considerable discount when interest free is the only offer I must be at a disadvantage and overpaying. If someone buys an item for £1,000 interest free, the company selling it will take the order and then process the sale through to a finance company. The company will then receive less that £1,000 from the finance company for the item purchased. Therefore if I pay £1,000 by debit card I have overpaid. The reality is that the finance company cannot handle the service for no charge. The interest is therefore a hidden charge that cash buyers suffer.
Many companies, from double-glazing to bikes have an agreement with someone like Barclays Finance. When asked for a discount for cash they all claim that it is an interest free loan, therefore there cannot be a discount. Which in my mind is mis-selling as there cannot logically be interest free money. Someone somewhere must be paying for it and this is not explained. Pretty far from it actually, from the incorrect and varied denials I have received.
Recently I asked for brochures for a Honda and was told that they now had an interest free loan on any new car. I then objected saying that Honda simply couldn’t afford to carry the financial burden over several years for literally billions of pounds worth of cars. Therefore I couldn’t consider buying a Honda unless I received a substantial discount. Their response was : The sale is passed to Honda Finance, which is the same company, therefore it is interest free. Clearly this cannot be. The dealer for a start is not Honda. The value of the car that they sell will be passed to Honda Finance who will then deduct from the buyer on a monthly basis. Granted if it is a £30,000 car then the buyer will only pay £30,000 for the length of the loan. However, Honda Finance have offices, staff and other overheads that need to be paid. Therefore the car dealer selling the car will not bank and retain £30,000 but a figure considerably less. Anyone paying the £30,000 on receipt of the car is therefore being overcharged by the amount of the finance by comparison to the person who takes the £30,000 as a loan.
Earlier in the year I asked for a price for a laminated fire door. It was offered as interest free by one company and was around £1,500. Again, as I do every time interest free is claimed, I said that there is no such thing as interest free. After some discussion the salesman admitted that they did pass on to Barclays the total sales value but under a certain level it was not worth their while. There was therefore a tendency to lift the sales value above their lower limit so that they could pass the debt on. There were also different levels of interest depending upon the loan value. A lower interest rate applied to goods over £5,000 and so on. So not only is the possibility to make say a £800 or £900 sale the value could be increased to £1,001 or higher to get the salesman extra commission on the loan and to sell the debt on. The person paying on order will be hit with a double charge because they do not reduce the quotation for cash. If they proceed they will suffer the inflated cost and the interest charge. It is quite possible but I do not know if it is the case that the selling companies may have an agreement with the loan companies to transfer all sales above (say) £1,000 to the finance company. Basically this is what used to be selling their invoices. Lower values they could no doubt handle in their sales ledger. Companies short of cash flow appear to increase their quotations to ensure the majority of their invoices are passed to finance companies. There is clearly an incentive to do so, to the disadvantage of some customers. Regarding the I purchased exactly the same item from another company for a little less than £1,200 a saving of over £300.
The conception of interest free is that the selling company is providing a product and an extended period of payment at no charge. No commercial company can afford to carry such a huge debt. Simple maths must display that. If a car sales company offers interest free over three years and sells 1,000 cars at £30,000 in one year, by the beginning of the fourth year they will have a debt of £90m and received back £30m. All things being equal, they will then for ever be carrying a debt of £60m. The only way to reduce that debt is to stop interest free or close down. For any company accountant to propose to increase debts by the value of three, or four or five years turnover is incomprehensible. Therefore there must be an interest charge, it cannot be interest free. Late payments are a problem that all businesses have, so it is inconceivable that any business could give three years credit when they consider an invoice overdue at 28 days.
It could be suggested that basically these people are mis-selling by claiming interest free but putting anyone who pays the total with the order to a disadvantage. They have paid an interest charge and have lost the opportunity cost of the ownership of their money. It is surely unfair to those people who purchase anything that is claimed to be interest free but pay the full ticket value? Logically, there cannot be interest free loans.
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Comments
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CaptainPerfect wrote: »INTEREST FREE – Is it mis-selling?
There are an increasing number of interest free offers, from sheds, to cars, to bikes, to sofas, to almost anything. There cannot be interest free, borrowing money cannot and never has been free. Surely it can be argued that interest free is a totally false claim, certainly to those who pay in full when ordering it must therefore be a hidden overcharge. This overcharge is probably in the range or 10% to 25%.
Personally, I do not want credit, which is why I feel I am restricted in where I am able to spend my money. Unless I can receive a considerable discount when interest free is the only offer I must be at a disadvantage and overpaying. If someone buys an item for £1,000 interest free, the company selling it will take the order and then process the sale through to a finance company. The company will then receive less that £1,000 from the finance company for the item purchased. Therefore if I pay £1,000 by debit card I have overpaid. The reality is that the finance company cannot handle the service for no charge. The interest is therefore a hidden charge that cash buyers suffer.
Many companies, from double-glazing to bikes have an agreement with someone like Barclays Finance. When asked for a discount for cash they all claim that it is an interest free loan, therefore there cannot be a discount. Which in my mind is mis-selling as there cannot logically be interest free money. Someone somewhere must be paying for it and this is not explained. Pretty far from it actually, from the incorrect and varied denials I have received.
Recently I asked for brochures for a Honda and was told that they now had an interest free loan on any new car. I then objected saying that Honda simply couldn’t afford to carry the financial burden over several years for literally billions of pounds worth of cars. Therefore I couldn’t consider buying a Honda unless I received a substantial discount. Their response was : The sale is passed to Honda Finance, which is the same company, therefore it is interest free. Clearly this cannot be. The dealer for a start is not Honda. The value of the car that they sell will be passed to Honda Finance who will then deduct from the buyer on a monthly basis. Granted if it is a £30,000 car then the buyer will only pay £30,000 for the length of the loan. However, Honda Finance have offices, staff and other overheads that need to be paid. Therefore the car dealer selling the car will not bank and retain £30,000 but a figure considerably less. Anyone paying the £30,000 on receipt of the car is therefore being overcharged by the amount of the finance by comparison to the person who takes the £30,000 as a loan.
Earlier in the year I asked for a price for a laminated fire door. It was offered as interest free by one company and was around £1,500. Again, as I do every time interest free is claimed, I said that there is no such thing as interest free. After some discussion the salesman admitted that they did pass on to Barclays the total sales value but under a certain level it was not worth their while. There was therefore a tendency to lift the sales value above their lower limit so that they could pass the debt on. There were also different levels of interest depending upon the loan value. A lower interest rate applied to goods over £5,000 and so on. So not only is the possibility to make say a £800 or £900 sale the value could be increased to £1,001 or higher to get the salesman extra commission on the loan and to sell the debt on. The person paying on order will be hit with a double charge because they do not reduce the quotation for cash. If they proceed they will suffer the inflated cost and the interest charge. It is quite possible but I do not know if it is the case that the selling companies may have an agreement with the loan companies to transfer all sales above (say) £1,000 to the finance company. Basically this is what used to be selling their invoices. Lower values they could no doubt handle in their sales ledger. Companies short of cash flow appear to increase their quotations to ensure the majority of their invoices are passed to finance companies. There is clearly an incentive to do so, to the disadvantage of some customers. Regarding the I purchased exactly the same item from another company for a little less than £1,200 a saving of over £300.
The conception of interest free is that the selling company is providing a product and an extended period of payment at no charge. No commercial company can afford to carry such a huge debt. Simple maths must display that. If a car sales company offers interest free over three years and sells 1,000 cars at £30,000 in one year, by the beginning of the fourth year they will have a debt of £90m and received back £30m. All things being equal, they will then for ever be carrying a debt of £60m. The only way to reduce that debt is to stop interest free or close down. For any company accountant to propose to increase debts by the value of three, or four or five years turnover is incomprehensible. Therefore there must be an interest charge, it cannot be interest free. Late payments are a problem that all businesses have, so it is inconceivable that any business could give three years credit when they consider an invoice overdue at 28 days.
It could be suggested that basically these people are mis-selling by claiming interest free but putting anyone who pays the total with the order to a disadvantage. They have paid an interest charge and have lost the opportunity cost of the ownership of their money. It is surely unfair to those people who purchase anything that is claimed to be interest free but pay the full ticket value? Logically, there cannot be interest free loans.
:rotfl::rotfl::rotfl::rotfl::rotfl:
How can it possibly be mis-selling? You know the price before you pay and if you don't like it then you are free to take your money elsewhere.
There are a number of ways companies can make money from interest free credit. For example encouraging people to spend more than they usually would on a particular item. Take your Honda example. Perhaps I am in the market for a new car and I have £15k in savings. Honda are offering 0% finance so now instead of buying a £15k Honda I buy a £30k Honda.
Some companies charge more for their products. Sofas are a good example of this. There are a number of large chains selling sofas with 0% finance but their sofas are actually quite expensive for what they are. If you have the means to buy a sofa without 0% finance you have a greater choice of sofa companies and can often buy a better sofa for less because you don't need 0% finance to fund the purchase.
Another way is the 0% buy now pay nothing later deals. Fine if you remember to pay later on time but if you don't it's very expensive and the companies are banking on some eejits forgetting.
That's by no means an exhaustive list.0 -
Good luck on that one.
Oh no my interest free loan was really interest free because i paid it off on time...Censorship Reigns Supreme in Troll City...0 -
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Borrowing money is often free.
I own my CC company more than £2k. I won't pay them any interest.
I can borrow £250 for as long as I like from First Direct, and they won't charge me anything.0 -
Any chance of an executive summary, for those of us without the time to read that?0
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Of course you know the price but the price includes interest, as I have explained.
If you are buying a £30k Honda there is probably £6k in interest. I want to buy the Honda for £24 cash, not £30K over three years. That is the point......its called maths. Furthermore, as the car only has a value of £24k, in 3 years it will have lost £8k in depreciation, down to £16k. Anyone on the interest free will have lost £14k after three years.0 -
Nowt in the world is free.0
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I work at dfs its same price cash or finance so it is interest free.
Out of interest what profit percentage do you think a shop should be allowed to make ?.
What a stupid post0 -
CaptainPerfect wrote: »Of course you know the price but the price includes interest, as I have explained.
If you are buying a £30k Honda there is probably £6k in interest. I want to buy the Honda for £24 cash, not £30K over three years. That is the point......its called maths. Furthermore, as the car only has a value of £24k, in 3 years it will have lost £8k in depreciation, down to £16k. Anyone on the interest free will have lost £14k after three years.
Your figures are a long way out, £6000 of pure interest would be a high APR (likely well into subprime for that value), buyers eligible for the interest free package would likely be a small portion with a good credit history able to get a loan with a low APR. Not only is the cost of the interest far lower than you've stated but also the car dealer will receive commission for the finance product.
The finance companies can afford to do that as not every person will pay up in time during the interest free period where in some cases the finance charges are far higher than a bank loan they could have taken out at the time.
It's ridiculous to believe that car dealers have such massive margins when they clearly don't hence pushing finance products they can get commission on and other after market products for the bodywork and interior with a large markup which is where they make their money.0
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