Interest Free Terms

[Lensen]

That is scary.

Another thing, when me & my first ex went to apply for a home loan, the bank took ages to approve it because we had no credit history. We always paid cash for everything & even though we had the deposit & good jobs, they weren't keen to lend us money. Seems you have to go into debt to get a loan.

That's actually the main reason I got a credit card. Spent five years putting all my expenses on the card and paying it off at the end of the month = solid credit history when you go to get a loan.

maybe 20 years ago, nowadays not an issue. as long as you have no negative credit history then the existence of non-existence of debt over the course of your life is almost irrelevant (unless you currently have a lot, obviously)

I don't think it's necessarily the difference between getting a mortgage approved and getting a mortgage not approved, it's more the amount the bank will give you.

yeah, whatever card limits you have, the banks will take into account 2.5-3% of the limit as a monthly commitment so reduce the amount you're able to borrow. if $75-90 a month is the difference between an approval and a decline though you'd have to question whether the loan is a good idea

 

[Total_Juddshanks]

OP took a wrong turn at the Chrisco thread.

 

[Jackfrost]

OP took a wrong turn at the Chrisco thread.

What did you mean by that?

 

[Breva_]

I reckon it's good, when I built my last house I used all my cash on that & had nothing left for furniture.
So I racked up around 40k in interest free furniture & white goods from various stores. Paid all that back within 12 months & didn't have pay much extra.
It was nice to move into a house fully furnished & not have to rely on 2nd hand or cheap furniture to get by on until I could afford the furniture I really wanted.

 

[Northworth]

Same thing happened to me, but it's just as easy to cancel the card, apply for the home loan, and then reapply for the card once you've moved in. I did that (wasn't intending to reapply for the card, but my laptop broke a few months after I moved in, so got it interest free - and paid it off well within the interest free period).

The scary thing is that a) they approved it for $8000 (which I know I would never be able to manage, so will never ever get something that big on it) and b) they kept offering to up the limit up to $12000 (I threw the letter out enough times for them to stop offering it to me).

While I know where my limits are with interest free, there would be a lot of people who wouldn't, and therefore would fall into the trap of paying big interest and chasing their own tail.

If you're smart with it, you can have it work to your advantage, and it's a convenient way to pay off big purchases. If you're dumb enough with it, it can truly take you for a ride.

I know what you mean...
1 - I bought a $1k couch.... went "interest free - sure"
2 - sign the forms
3 - lo and behold I get a $12k credit card
4 - I quickly paid off the couch (and should have cancelled the card immediately)
5 - but having a $12k open credit line is a risk to any future lender... it was no biggy for me as I then cancelled the card

But I can imagine someone with less awareness getting to step three and thinking... wow all this credit - let's load up on TVs and furniture and getting in way over their heads. And the interest rates only kick in much later - there must be some very sad outcomes that GE are taking advantage of.

 

[Bunk Moreland]

“Credit history” means nothing unless you actually have outstanding bad debt (as mentioned above). You don’t build up gold stars for paying your credit card or car loan back on time.

 

[Catfish Alley]

And the interest rates only kick in much later - there must be some very sad outcomes that GE are taking advantage of.

It's not really taking advantage of people though. Not GE's fault if people are stupid.

 

[Northworth]

It's not really taking advantage of people though. Not GE's fault if people are stupid.

cool avatar
seven cities of gold - golden condor
i loved that show

 

[Catfish Alley]

cool avatar
seven cities of gold - golden condor
i loved that show

Mysterious Cities of Gold Thanks. It is a cool show.

 

[mantis]

“Credit history” means nothing unless you actually have outstanding bad debt (as mentioned above). You don’t build up gold stars for paying your credit card or car loan back on time.

Back in the 70's you did, hence our problem.

 

[Scotland]

It's not really taking advantage of people though. Not GE's fault if people are stupid.

Same goes for home loans.

 

[Bunk Moreland]

It's not really taking advantage of people though. Not GE's fault if people are stupid.

I reckon it’s pretty average corporate behaviour actually... many types of business are questionable in terms of ethics, like perhaps on a borderline... but when you’re relying purely on the stupid people to make a profit... you don’t earn one cent from the smart people... that’s when you get into predatory business practices imo, which is what this interest-free stuff is.

 

[Bunk Moreland]

Same goes for home loans.

Difference – everyone pays interest on their home loan – it’s not a product that relies purely on peoples’ weakness to make money.

 

[Catfish Alley]

Everything is in the print though. They can't be blamed for not informing people and it's not like they are handing out loans to mentally handicapped. It's a pretty simple thing. If they can't work it out then I'm not sure how they are managing rent or a mortgage for the home where they'd put this furniture anyway.

 

[Caesar]

Everything is in the print though. They can't be blamed for not informing people and it's not like they are handing out loans to mentally handicapped. It's a pretty simple thing. If they can't work it out then I'm not sure how they are managing rent or a mortgage for the home where they'd put this furniture anyway.

By that logic, loan sharking is okay.

 

[Catfish Alley]

By that logic, loan sharking is okay.

How so? Are you saying loans with interest should be illegal like loan sharking?

 

[Scotland]

Difference – everyone pays interest on their home loan – it’s not a product that relies purely on peoples’ weakness to make money.

True, I was more referring to poor planning/lack of understanding in general.

If you have a $10k credit card you don't have to buy $10k worth of stuff. Likewise if the bank views you as a potential $500k home loan customer you don't have to borrow $500k.

 

[Caesar]

How so? Are you saying loans with interest should be illegal like loan sharking?

If you're saying that it's fair game because everything's spelled out in print and they don't loan to the mentally handicapped - well, the same applies to usury.

Predatory lending is illegal for a reason. A lot of these interest-free deals are pretty ethically questionable in the way they go about making money.

 

[Bunk Moreland]

Everything is in the print though. They can't be blamed for not informing people and it's not like they are handing out loans to mentally handicapped. It's a pretty simple thing. If they can't work it out then I'm not sure how they are managing rent or a mortgage for the home where they'd put this furniture anyway.

True... but I question the ethics. If you believe that absolutely everything is acceptable in business as long as it’s documented, then it’s fine. IMO it’s not so black and white.

Every business operates with the profit motive at its core... fair enough. When you’re relying purely on the weak / stupid people to generate that income, every single cent of it, I think you get into very predatory behaviour.

When the major feature of your product is “interest free”, and the only profit deprived from it is by charging interest, by nature you’re going to be engaging in behaviour that pushes the relative boundaries of deception in order to make a profit.

 

[Catfish Alley]

Fair enough. I'll agree to disagree. I figure the people in charge of business ethics in Australia have it covered. I don't see it as much different to banks. Nobody is forcing you to use their service and the principle is pretty easy to understand.

 

[Scotland]

Harvey Norman are forever advertising 'no deposit, no interest, no repayments for 12 months' and similar.

If I was signing up for that I would expect to walk into the shop, walk out with a giant TV or something then pay for it in 12 months time. According to the T&Cs on the website it costs $25 to set up a credit card with them (in order to make the purchase) and $4.95/month in fees for said card. Unless there is a sneaky hidden clause somewhere that means I have to make payments and/or will attract interest before 12 months then I see no issue.

If 12 months is up and I can't pay the balance then I attract interest. That seems fair to me, it's a 12 month interest free period - not a 'pay us back when you can' offer.

Harvey Norman get a sale. MasterCard get ~$85 plus any interest on the outstanding balance after the initial 12 month period. Am I missing something?

 

[Caesar]

Harvey Norman get a sale. MasterCard get ~$85 plus any interest on the outstanding balance after the initial 12 month period. Am I missing something?

The issue is that it's not user-pays. There is no profit in Harvey Norman providing expensive goods to you and not getting the money to pay for the stock for 12 or 24 months. Even if the purchase price contains a markup, they are still taking a hit. They have to make up for this by profiting off the small percentage of people who don't pay it back within the period.

A fair interest rate is generally regarded as being the cost of capital plus a premium for risk. The problem with these sorts of deals is that they also whack the cost of everybody else's capital on top as well. So if I am paying interest on my GE loan I'm not only paying for the cost of financing my product, but also yours and everybody else's. The upshot being that the interest rate is in no way, shape or form a fair price for the money provided to me.

It's pretty much predatory lending by stealth.

 

[Bunk Moreland]

Nobody’s saying there’s outright deception occurring... but when a product relies purely on foolishness, naivety or weakness to make any profit, you’re getting into some murky waters re business ethics and predatory behaviour. The advertising for these products simply screams “interest free”... they’re designed to lure people in with that as the selling point.

There’s quite a number of major retailers who sell bulk, expensive items, who have never gone into this “interest free” finance stuff, for very good reason. It’s ethics.

 

[Catfish Alley]

It's pretty much predatory lending by stealth.

How is it stealth though? It's almost impossible not to know about the interest rate.

 

[Caesar]

How is it stealth though? It's almost impossible not to know about the interest rate.

Because while superficially the same terms apply to everyone, in actual fact the way that the deals are structured is deliberately designed to extract massive margins from the less financially literate in order to provide the majority with a killer deal that would otherwise not be economically viable.