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Scheme does not lack creativity...
Old 09-16-2007, 12:08 PM   #1
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Scheme does not lack creativity...

“0 interest until 2009!” the advertisement headline reads for a local furniture store in my Sunday morning newspaper. I’m not in need of any more furniture, however my curiosity is peaked by the concept of getting something for nothing verses a commercial venture having to unload their warehouse loaded with sofas and tables and chairs.

As I read further, the small print revealed the following requirements:
  • 1. Minimum purchase $1299.
  • 2. $50 down payment required.
  • 3. Finance charges will be shown on the contract (interest charges will be assessed at a maximum APR of 21.8%),
  • 4. but will be refunded on any length contract,
  • 5. if monthly payments are paid on time,
  • 6. and the balance is paid in full on or before January 5, 2009
If I can interpret the above, a customer has to agree to pay the finance charges for the next 15 months or so (3), the amount of your payments over the next 15 months that includes the 21.3% finance charge will be banked by the furniture company (4) and will no doubt accumulate at current interest of about 5% during that time. If you do not miss any of the payments, or are not late with any of the payments, and fully pay off your balance on or before 1/5/09, they will eventually return to you the part of your payments that represented finance charges for the 15 or so months that has accumulated in their bank (5/6). The $50 (2) probably covers the cost of the administration of this clever scheme. I’m not sure what the $1299 (1) represents other than they want you to purchase a large number of items and not just a $100 chair, for example.

You, the furniture buying consumer, will in fact be giving them an interest-free loan for that time period. If you mess up, even one time, the deal is off and they keep it all.

What a great way to sell furniture and get free cash!

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Old 09-16-2007, 12:39 PM   #2
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The reason for the $1299 minimum I think is to simultaneously make the customer feel like they're taking the store for enough -- after all, it's interest free until 2009! -- while also ensuring that they won't be able to save up enough to pay off the balance when it comes due, thus ending up with about a grand that they're owing 21.8% on. And of course, by then the furniture is beat up enough to where they can't return it.


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Old 09-16-2007, 01:01 PM   #3
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My friend admitted that he paid bundles of money for his stereo. We caught it when we were moving him and found rent to buy on the back of his speakers. Makes the furniture free interest scheme look like pikers.
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Old 09-16-2007, 05:16 PM   #4
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A few things that I think is your wrong thinking....

The $50 is toward your $1300, so you only finance $1250....

As long as you have not paid over $1250, you REALLY have not paid any interest to them... you could just as well think that it is principal... and make one final payment for all due and then wait to get back your 'accumulated interest'.. I am sure someone can come up with the amort table that would tell you when you actually go over the borrowed amount..

Everybody has the conditions of making payments etc to get the deal... I have never see someone say, 'we will give you zero rate until you mess up and THEN we will start to charge you interest'.... it is just the way the game is played...
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Old 09-16-2007, 05:29 PM   #5
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I have one of these deals with a furniture company $3,600, paying about $75/mo until 2011. I set it up as an automatic payment. Not bad if you play by the rules.
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Old 09-16-2007, 05:42 PM   #6
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There are enough that make a mistake or for some reason cannot pay it off in time. They pay the toll.

On average the company makes out. For that matter, they may have gotten a lower than normal price from the suppliers for a certain level of orders.

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