Repaying 0% loan

maddad514

Given the MSE advice "borrow as little as possible, repay as quickly as possible" does that still apply when I have a 0% loan. I have £12000 at 0% for 5 years. I also have the money to pay off in full but with interest rates on savings products rising should I really use the £12000 savings to pay off the 0% loan or should I put it into a fixed bond for a year and move it next year? I know what I want to do but my wife does not like holding debt. Thanks.

Ebe_Scrooge

A 0% loan?  Never heard of such a thing.  Is it from a 0% money transfer credit card?

Whatever, if it really is 0% then it makes sense to stick the money where it's earning some interest, and make sure you're not tempted to dip into it - make absolutely sure it's still there when the time comes to repay the loan.

If there are monthly minimum payments required (as there would be on a credit card), you must make sure you continue to make those on time - a Direct Debit is the simplest and safest way.

maddad514

Thanks @Ebe_Scrooge. The loan was for a kitchen and finance options included a 0% interest loan for 5 years. That was back in April with Novuna Finance. The existing £12k would be locked away on a yearly basis and never touched as we do not need it. We can support the monthly payments to pay off the loan.

MEM62

Ebe_Scrooge said:

A 0% loan?  Never heard of such a thing.  

Quite common.  We were offered one by Wren when we bought our new kitchen.  As we had the cash, we didn't take it as the money would have earnt virtually nothing by leaving it in the bank.  With today's rates what we spent would probably make a couple of grand over five years so I might make a different decision if I were to call it now.    

Ebe_Scrooge

Yep, fair point, I didn't equate "loan" with "interest-free finance for a kitchen" in my mind.

Although, as a slight aside, I'm always a little cynical of such things, similar to the likes of DFS or whatever.  There's no such thing as a free loan, someone has to pay for it somewhere along the line.  I've often wondered whether you could negotiate a cheaper price for paying cash ?

Sorry, that's slightly off topic, I know!

MEM62

'Negotiating' with Wren is a unique process.  They have a sales routine very much akin to what I experienced when living in the US.  Even when you recognise the sales technique and try to short cut it to get to the point, the sales rep will go through regimented steps in their sales process anyway.  You absolutely cannot derail him and turn it into a normal conversation.          

horsewithnoname

Ebe_Scrooge said:

Yep, fair point, I didn't equate "loan" with "interest-free finance for a kitchen" in my mind.

Although, as a slight aside, I'm always a little cynical of such things, similar to the likes of DFS or whatever.  There's no such thing as a free loan, someone has to pay for it somewhere along the line.  I've often wondered whether you could negotiate a cheaper price for paying cash ?

Sorry, that's slightly off topic, I know!

I had a sofa from sofology, on the never never - no price reduction for paying up front, so it seemed rude not to have 12 months at 0%. Not everywhere will knock off money for paying up front.

Bob~24601

horsewithnoname said:

Ebe_Scrooge said:

Yep, fair point, I didn't equate "loan" with "interest-free finance for a kitchen" in my mind.

Although, as a slight aside, I'm always a little cynical of such things, similar to the likes of DFS or whatever.  There's no such thing as a free loan, someone has to pay for it somewhere along the line.  I've often wondered whether you could negotiate a cheaper price for paying cash ?

Sorry, that's slightly off topic, I know!

I had a sofa from sofology, on the never never - no price reduction for paying up front, so it seemed rude not to have 12 months at 0%. Not everywhere will knock off money for paying up front.

I agree that you may not always get a discount for paying up front. But the cost of credit has to come from somewhere, there is no such thing as free credit.

So the Sofa price is higher to account for the free credit. Giving free credit always sounds better than charging extra for it, even if you end up paying exactly the same. A sofa @ £900 with £100 interest is the same as a Sofa sold at £1,000 with interest free.

Becuase they class it as interest free, they won't normally allow you to pay £900, as they will argue the interest doesn't cost anything and the sofa is £1,000.

The fact that they don't provide any discount for paying up front, means that if you do, they will esentailly be gaining from it more.

horsewithnoname

Bob~24601 said:

horsewithnoname said:

Ebe_Scrooge said:

Yep, fair point, I didn't equate "loan" with "interest-free finance for a kitchen" in my mind.

Although, as a slight aside, I'm always a little cynical of such things, similar to the likes of DFS or whatever.  There's no such thing as a free loan, someone has to pay for it somewhere along the line.  I've often wondered whether you could negotiate a cheaper price for paying cash ?

Sorry, that's slightly off topic, I know!

I had a sofa from sofology, on the never never - no price reduction for paying up front, so it seemed rude not to have 12 months at 0%. Not everywhere will knock off money for paying up front.

I agree that you may not always get a discount for paying up front. But the cost of credit has to come from somewhere, there is no such thing as free credit.

So the Sofa price is higher to account for the free credit. Giving free credit always sounds better than charging extra for it, even if you end up paying exactly the same. A sofa @ £900 with £100 interest is the same as a Sofa sold at £1,000 with interest free.

Becuase they class it as interest free, they won't normally allow you to pay £900, as they will argue the interest doesn't cost anything and the sofa is £1,000.

The fact that they don't provide any discount for paying up front, means that if you do, they will esentailly be gaining from it more.

Yes I know that. But the fact remains the sofa would cost me the same if I paid for it up front or over 12 months, so I may as well pay over 12 months as it will cost me the same.

Nebulous2

Bob~24601 said:

horsewithnoname said:

Ebe_Scrooge said:

Yep, fair point, I didn't equate "loan" with "interest-free finance for a kitchen" in my mind.

Although, as a slight aside, I'm always a little cynical of such things, similar to the likes of DFS or whatever.  There's no such thing as a free loan, someone has to pay for it somewhere along the line.  I've often wondered whether you could negotiate a cheaper price for paying cash ?

Sorry, that's slightly off topic, I know!

I had a sofa from sofology, on the never never - no price reduction for paying up front, so it seemed rude not to have 12 months at 0%. Not everywhere will knock off money for paying up front.

I agree that you may not always get a discount for paying up front. But the cost of credit has to come from somewhere, there is no such thing as free credit.

So the Sofa price is higher to account for the free credit. Giving free credit always sounds better than charging extra for it, even if you end up paying exactly the same. A sofa @ £900 with £100 interest is the same as a Sofa sold at £1,000 with interest free.

Becuase they class it as interest free, they won't normally allow you to pay £900, as they will argue the interest doesn't cost anything and the sofa is £1,000.

The fact that they don't provide any discount for paying up front, means that if you do, they will esentailly be gaining from it more.

This is often said on MSE, and you are right, the cost of credit has to come from somewhere, but it is not always the retailer, or at least not all of it. 

Many 0% interest deals need to be repaid in full before they end, or you will be charged interest right back to the start of the agreement. That can be quite lucrative, if a lot of people cannot pay in full or forget to pay. Get enough of those and the people who pay interest are the ones that cover the costs for the ones who repay within the 0% period. 

The lender and the retailer will have an arrangement where the lender is providing incentives to the retailer to get the business. In some circumstances the retailer might actually be better off if you take the credit. 

MrFrugalFever

Nebulous2 said:

Bob~24601 said:

horsewithnoname said:

Ebe_Scrooge said:

Yep, fair point, I didn't equate "loan" with "interest-free finance for a kitchen" in my mind.

Although, as a slight aside, I'm always a little cynical of such things, similar to the likes of DFS or whatever.  There's no such thing as a free loan, someone has to pay for it somewhere along the line.  I've often wondered whether you could negotiate a cheaper price for paying cash ?

Sorry, that's slightly off topic, I know!

I had a sofa from sofology, on the never never - no price reduction for paying up front, so it seemed rude not to have 12 months at 0%. Not everywhere will knock off money for paying up front.

I agree that you may not always get a discount for paying up front. But the cost of credit has to come from somewhere, there is no such thing as free credit.

So the Sofa price is higher to account for the free credit. Giving free credit always sounds better than charging extra for it, even if you end up paying exactly the same. A sofa @ £900 with £100 interest is the same as a Sofa sold at £1,000 with interest free.

Becuase they class it as interest free, they won't normally allow you to pay £900, as they will argue the interest doesn't cost anything and the sofa is £1,000.

The fact that they don't provide any discount for paying up front, means that if you do, they will esentailly be gaining from it more.

This is often said on MSE, and you are right, the cost of credit has to come from somewhere, but it is not always the retailer, or at least not all of it. 

Many 0% interest deals need to be repaid in full before they end, or you will be charged interest right back to the start of the agreement. That can be quite lucrative, if a lot of people cannot pay in full or forget to pay. Get enough of those and the people who pay interest are the ones that cover the costs for the ones who repay within the 0% period. 

The lender and the retailer will have an arrangement where the lender is providing incentives to the retailer to get the business. In some circumstances the retailer might actually be better off if you take the credit. 

The retailer will have to have gone through several hoops as a business in order to be able to broker finance with a lender, along with varying training sessions with its frontline staff which ultimately costs the business money so in short they wouldn’t do it if it didn’t give them a financial advantage. They’ll be paid a small commission for selling a product on finance and the lender will benefit from interest accrued when people exceed the promo-period. Win win for both.