Interest free loan

Lotak

csgohan4 wrote: »

how do you think they can afford to give you a so called 'interest free' loan? They factored it into the price, plus it may affect affordability as it is debt from a lender's prospective

I get that.
But if you want to buy that sofa from DFS, and it's the only sofa you want and they charge you £900 up front or £18.75 / month for 48 months, then you can't say that paying it up front is a better deal. It is much better to pay in instalments.

This only works if you can find the exact same sofa from Furniture Village for £850 up front.

If you have the option of paying something for £x up front or paying £x/ y per month for y months, it always makes financial sense to do the latter, all things being equal.

The interest charge might be factored into the price, but it isn't factored out if you pay it up front, so it makes more sense to "pay off the interest" in instalments.

sal_III

Lotak wrote: »

I get that.
But if you want to buy that sofa from DFS, and it's the only sofa you want and they charge you £900 up front or £18.75 / month for 48 months, then you can't say that paying it up front is a better deal. It is much better to pay in instalments.

This only works if you can find the exact same sofa from Furniture Village for £850 up front.

If you have the option of paying something for £x up front or paying £x/ y per month for y months, it always makes financial sense to do the latter, all things being equal.

The interest charge might be factored into the price, but it isn't factored out if you pay it up front, so it makes more sense to "pay off the interest" in instalments.

The point is that these £900 will "net" you like £45 in today's interests, while having the potential to interfere with your remortgage or another loan/finance of a more substantial amount.

Then there is the risk that you might be able to afford both the £900 or 18.75/m today, but fall on hard times in the future. If you buy outright now you won't have to worry about one more bill/potential default in this case.

For most people it's just not worth the risk and hassle over such a small amount. Not all value is monetary.

Lotak

sal_III wrote: »

The point is that these £900 will "net" you like £45 in today's interests, while having the potential to interfere with your remortgage or another loan/finance of a more substantial amount.

Then there is the risk that you might be able to afford both the £900 or 18.75/m today, but fall on hard times in the future. If you buy outright now you won't have to worry about one more bill/potential default in this case.

For most people it's just not worth the risk and hassle over such a small amount. Not all value is monetary.

That I'm not arguing against. Of course it impacts affordability, and one may spend the £900 frivolously, go on hard times and lose their sofa (as you said). For an ultra-sensible consumer, they'd put the £900 away into a savings account and use that balance to pay off the debt. If they need to remortgage and it rests on that £18.75, they can simply repay the rest of the debt and happy days! Obviously that applies to the extreme few.

But the argument was that the interest free finance wasn't really "interest free", because the interest charge was factored into the price, which I disputed.

Anyway, I'm a big fan of interest free periods for these sort of products, even if you have the money. It's effectively the same thing as stoozing. You're borrowing money you can afford to pay back, and generating interest from it.