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  • FIRST POST
    • CaptainPerfect
    • By CaptainPerfect 1st Aug 18, 4:30 PM
    • 2Posts
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    CaptainPerfect
    INTEREST FREE - Is it mis-selling?
    • #1
    • 1st Aug 18, 4:30 PM
    INTEREST FREE - Is it mis-selling? 1st Aug 18 at 4:30 PM
    INTEREST FREE Ė 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 couldnít afford to carry the financial burden over several years for literally billions of pounds worth of cars. Therefore I couldnít 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.
Page 2
    • bris
    • By bris 2nd Aug 18, 10:25 AM
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    bris
    best quality ones dfs sell are sometimes full price.


    You mean the ones sat way back in a corner for 28 days statutory full price time before they can half the price? Does that really count as full price.

    Honest question, if loan companies stopped charging to provide interest free do you think companies would lower there prices ?
    Originally posted by gycraig

    Of course, nothing is interest free, in this case the interest cost is loaded into the price of the goods. Same interest to them, different way to charge it.
    • Clive Woody
    • By Clive Woody 2nd Aug 18, 10:31 AM
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    Clive Woody
    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.
    Originally posted by CaptainPerfect
    If they can sell enough cars on the 0% finance deal making a decent profit why would they offer other deals making them no profit or a lot less profit.

    You are not obliged to buy their cars and equally they are not obliged to sell you their cars.

    Try CarWow or one of the online brokers as they offer significant discounts compared to what you will get on the forecourt....plus you will still quite likely end up dealing with the same dealership.

    As mentioned already, when a company offers a 0% finance deal it enables people who don't have the cash up front to pay over a longer term. The fact that effectively there is a premium built into the deal that covers the delayed payments is no major surprise.

    If you want a decent sofa try John Lewis, I don't think they do 0% finance, but then I've never asked when I've bought items from them.
    Rugby Union - The Greatest Game
    • sourcrates
    • By sourcrates 2nd Aug 18, 10:37 AM
    • 15,520 Posts
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    sourcrates
    I think the OP is confusing interest with discount.


    Originally Posted by CaptainPerfect
    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.



    Its not interest at all, its the dealerships margin, everyone has to make money at some stage of the process.


    30k is the cash price, and, if they offer interest free credit, which is unlikely, you will still pay 30k.


    If you could negotiate down the price to 24k, then that would be down to the generosity of the dealership, and would come off there margin, its nothing to do with interest, its down to the individuals negotiating skills.


    There is a certain line they will not cross, as they would make nothing on the sale.
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    • Penelopa.Pitstop
    • By Penelopa.Pitstop 2nd Aug 18, 1:58 PM
    • 358 Posts
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    Penelopa.Pitstop
    I work at dfs its same price cash or finance so it is interest free.
    Originally posted by gycraig
    For that reason I took 0% loan, even though I didn't need it. If there's no difference between cash purchase and a loan, it's not worth using my own money. I can use loan company money and keep mine during payment period.

    And of course 0% is there to attract buyers. Let them think they are saving on interest, while they could just buy for cash with discount (car example). To explain how it works for finance company: customer pays £30K from mentioned example, finance company aquires car with huge discount and also gets VAT return. So it's half of purchase price of £30K.
    Last edited by Penelopa.Pitstop; 02-08-2018 at 2:01 PM.

    • JimmyTheWig
    • By JimmyTheWig 2nd Aug 18, 2:28 PM
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    JimmyTheWig
    Nobody has to buy a sofa from the likes of DFS though. Not being reliant on cheap finance the OP can give his custom to any sofa retailer he chooses.
    Originally posted by Pixie5740
    But if the sofa he likes is from DFS then he's paying for the finance that he doesn't need.
    • Pixie5740
    • By Pixie5740 2nd Aug 18, 2:36 PM
    • 13,135 Posts
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    Pixie5740
    But if the sofa he likes is from DFS then he's paying for the finance that he doesn't need.
    Originally posted by JimmyTheWig
    How likely is it that of all the sofas in the world DFS is the only company who produce a sofa the OP likes?

    If for some reason DFS is the only shop then OP can find his dream sofa in then he needs to make a call and decide if his dream sofa is worth the DFS price tag.
    • Clive Woody
    • By Clive Woody 2nd Aug 18, 5:22 PM
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    Clive Woody
    But if the sofa he likes is from DFS then he's paying for the finance that he doesn't need.
    Originally posted by JimmyTheWig
    If he has the cash up front he can stick it in a savings account and draw it out as required to pay the 0% finance deal.
    Rugby Union - The Greatest Game
    • gycraig
    • By gycraig 2nd Aug 18, 5:46 PM
    • 473 Posts
    • 376 Thanks
    gycraig
    Of course, nothing is interest free, in this case the interest cost is loaded into the price of the goods. Same interest to them, different way to charge it.
    Originally posted by bris
    Letís say a company get charged 800 quid to lend the customers 5k over 4 years (completely made up number)

    If the finance company turned around tommorow and halfed that figure do you really think that would knock that off the price of the product ? Of course not they would just make more profit.
    • tempus_fugit
    • By tempus_fugit 2nd Aug 18, 7:03 PM
    • 504 Posts
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    tempus_fugit
    I wonder when we will see, if ever a post headed "mis brought" its getting beyond a joke now all these mis-selling threads it really is.
    Originally posted by venison
    Or "mis-bought" even.
    Retired at age 56 after having "light bulb moment" due to reading MSE and its forums. Have been converted to the "budget to zero" concept and use YNAB for all monthly budgeting and long term goals.
    • Enterprise 1701C
    • By Enterprise 1701C 2nd Aug 18, 7:33 PM
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    Enterprise 1701C
    I think where they make their money is when people forget when the interest free period ends. Then they are often charged interest for the WHOLE period of the loan.
    What is this life if, full of care, we have no time to stand and stare
    • Gentoo365
    • By Gentoo365 4th Aug 18, 9:32 PM
    • 396 Posts
    • 216 Thanks
    Gentoo365
    List price on cars is a starting point for negotiation. If you have cash to pay and the dealer has targets to meet then you negotiate the price.

    If you think he is making undue profit offer less. If the deal is still profitable the dealer will sell the car.

    Doesnt really matter what other arrangements are in place.

    Search via carwow or some other site and there will always be some dealers who will offer a discount.
    • Herzlos
    • By Herzlos 6th Aug 18, 8:22 AM
    • 8,105 Posts
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    Herzlos
    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.
    Originally posted by Nick_C
    Your credit card skims a couple of percent from the vendor for the transaction, so the credit card company still makes money and the sale price has likely been increased to compensate.
    • foxy-stoat
    • By foxy-stoat 6th Aug 18, 1:57 PM
    • 2,809 Posts
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    foxy-stoat
    Its about as mis-selling as advertising a £300 laptop for £600 for 3 weeks of the year and offering
    it at 50% off sale for the other 49 weeks.

    Marketing BS and if it works and it sells then happy days.
    • Ian 875
    • By Ian 875 8th Aug 18, 1:55 PM
    • 50 Posts
    • 26 Thanks
    Ian 875
    I work at dfs
    Originally posted by gycraig
    When does the sale end?
    • Ian 875
    • By Ian 875 8th Aug 18, 1:58 PM
    • 50 Posts
    • 26 Thanks
    Ian 875
    The flip side to this is we just bought something on 0% finance despite having the cash to buy it outright as it's good for the credit history later down the line
    • Clive Woody
    • By Clive Woody 8th Aug 18, 5:39 PM
    • 4,528 Posts
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    Clive Woody
    When does the sale end?
    Originally posted by Ian 875
    Rugby Union - The Greatest Game
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