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I live in France. I bought an apartment with a mortgage a month ago. I've been buying plenty of stuff for this apartment like furniture, decoration, oven, etc. And I still need to buy other stuff.

I've been offered to pay some of them cash and some of them in installments without any fee or interest. To contract this 0% APR credit with zero extra fee, I am not required to tell the credit company about the other credits / mortgage I am paying off.

Should I prefer paying with this 0% fee 0% APR credit, or pay everything at once? My guts tells me I should go with the 0% credit, but I'd like to have an second opinion on that. I have enough money to pay on the spot.

  • 6
    It depends on your situation and your personality. If you make a mistake on the terms or payments, it can cost you time and money. If you are diligently paying, it can be good... Sometimes you get free stuff when you use credit. – DaFi4 Jun 1 '16 at 11:02
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    hmm I still think you could have your phone stolen or drop it in water. why would you want to take on any risk if you have the money to pay cash right away? – DaFi4 Jun 1 '16 at 12:54
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    What I'm gathering from these comments/answers is that you really need to ask yourself why the 0% credit option benefits you. The cash option seems all around the simplest, and lowest risk of the two. So unless you gain anything noticeable with credit, go cash. – Broots Waymb Jun 1 '16 at 16:04
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    When I bought my wife's engagement ring, there was 0% financing offered. There was also a discount for paying upfront, and other customers didn't seem to recognize that this wasn't any different than charging interest. There is a reason they are offering 0% - they expect to make more money off of it. Find out what the reason is before you agree. – Joel Jun 2 '16 at 1:33
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    I recently bought furniture where there was a 0% interest financing. But in the fine print it was 0% for 5 years and if the total wasn't paid off by then, all of the interest from the beginning of the loan would be added. Be sure to read the details of the offer. – Hannover Fist Jun 2 '16 at 23:29
56

There are several issues with paying for furniture and appliances with 0% credit instead of paying with cash.

  1. When you pay with 0% credit, you might be tempted to spend more on something than you would have if you paid with cash, because it feels like free money, and you've justified in your mind that the extra you earn will help pay for the more expensive item.

  2. Businesses don't offer 0% credit for free, and they don't lose money on the deal. When you shop at a store that offers 0% credit, you are generally overpaying for the item. By shopping at a store that does not offer 0% credit, you might be able to get a better price.

  3. Your savings account is likely earning very little interest. You might invest the money you intend for your purchases in a place that gets better returns, but in most of these places the returns are not guaranteed, and you might not do as well as you think.

  4. 0% loans typically come with lots of conditions that have very heavy penalties and interest rate hikes for late payments. You can mitigate this risk by setting up automatic payments, but things can still go wrong. Your bank might change your account number, making the automated payment fail. As you mentioned, you might also forget to put the proper amount of money in the account. A single mistake can negate all of the tiny gains you are trying to achieve.

Ultimately, the decision is yours, of course, but in my opinion, there is very, very little to gain with buying something on 0% credit when you could be paying cash.

  • 13
    @dotixx Yes, for large purchases, if I had the cash, I would pay it. If you feel uncomfortable spending that much cash, you should question whether you really need/want the item enough to pay that much for it. Buying expensive items costs real money. If buying on credit feels better to you, it could be a sign that you can't really afford it. – Ben Miller Jun 1 '16 at 12:18
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    @dotixx If these purchases aren't an emergency, and you don't have enough cash to pay for it without dipping into your emergency savings, then you really don't have enough cash to pay for them yet. You are still relying on your future earnings to pay for them. It is best to wait, or to buy something less expensive, perhaps a used item. – Ben Miller Jun 1 '16 at 12:27
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    @BenMiller , good point, and some used items do not go down in value, like Eames furniture, real artwork, or free items. – DaFi4 Jun 1 '16 at 12:56
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    In a lot of cases #2 isn't true, exactly because of #1. They know if they get you a store card with 0% interest (it's normally for a fixed term of 6-24 months, with all of the interest that would have been due due if you don't pay it in that period) you will spend more money not only on that first trip, but you are more likely to keep coming back and spending. 0% interest is used as a loss leader, and a very effective one. – Doyle Lewis Jun 1 '16 at 13:15
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    Some companies add in all the interest if you don't pay off the loan within a certain amount of time 0% Interest for 5 Years! bankrate.com/finance/credit-cards/… – Hannover Fist Jun 2 '16 at 23:32
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Read the terms and conditions very carefully. Many zero percent deals have a requirement that you pay back at a certain date, and if you don't, you'll have to pay some enormous percentage. Nobody will remind you of the date, because the lender has the secret hope that you will forget.

  • 1
    I don't know how if this is country-related or bank-related but I actually did once a 0% interest loan for a 6k€ expense and there was tricks: I could pay it off fully whenever I wanted without any penalties, it was 0% interest, 0 fees. Everything directly withdrawn from my bank account so I could not be late. Now I've paid it off, in advance and nothing wrong happened. The only thing is they tried to make me subscribe for optional insurance... which I didn't since it was optional. – dotixx Jun 1 '16 at 13:36
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    @dotixx - "Optional insurance" sounds like the insurance you can take in casino blackjack. Pretty much a sucker bet and you should never take it. So I assume you made the right call that time. – Broots Waymb Jun 1 '16 at 16:07
  • In my experience, many of those 0% loans are denied if you don't take the optional insurance : ) – Agent_L Jun 3 '16 at 15:32
6

A friend recently bought an 800€ TV on 0% financing. Sounded like a sensible thing to do. Why pay 800 when you can pay 80pm for 10 months?

It took 30mins to set up the 'loan'. She had to sign all kinds of documents, giving away much personal information (age, employment info, income, email address etc). She now has a financial relationship with an institution which has nothing to do with the item purchased. She is bombarded with all kinds of financial offerings.

She regrets taking out the finance. She had the money. The hassle and the unwanted links to banks make the deal unattractive. Perhaps she should have tried to make a cash deal...

5

If you can set up automatic payments (like direct debits in the UK) and you can be disciplined enough to not spend the money on something else then this can be a good way of building/improving your credit rating. Banks / Lenders like it when they see you have previously taken, and repaid, credit. This can help you get better finance deals etc. in the future.

Update: as noted in the comments France had a different financial system and people do not have credit ratings, so this point isn't valid in France

  • 1
    In France there is no such thing as credit rating / credit score (or I am not aware of it ^^). So I don't think your answer applies? But you're right, the payments are direct debits. – dotixx Jun 1 '16 at 14:19
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    Oh I did not know that. This point is not relevant in France, but would be in some other countries (including UK/US). – mattumotu Jun 1 '16 at 14:44
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If a shop offers 0% interest for purchase, someone is paying for it.

e.g., If you buy a $X item at 0% interest for 12 months, you should be able to negotiate a lower cash price for that purchase. If the store is paying 3% to the lender, then techincally, you should be able to bring the price down by at least 2% to 3% if you pay cash upfront.

I'm not sure how it works in other countries or other purchases, but I negotiated my car purchase for the dealer's low interest rate deal, and then re-negotiated with my preapproved loan. Saved a good chunk on that final price!

1

Two cases:

  1. You take the credit and reinvest the cash equivalent (be it a savings account or otherwise), yielding you the x% at virtually zero risk. Unless of course you consider possibility of your own negligence a risk (in case of missed payments, etc.).

  2. You pay by cash and have the peace of mind at the cost of that x%.

The ultimate decision depends on which you value more - the $ you get from x%, or the peace of mind.

0

Remember that due to inflation you are paying back the loan with cheaper dollars in the future. If there are no gimmicks in the loan like early payment penalties, or must pay by a certain date or that the credit was for a store that sold the products at a higher price than you could get elsewhere then you are not just getting free money they are paying you to take the money.

  • inflation is something you learning about in history.... – Ian Jun 4 '16 at 13:01
0

0% furniture loans can hurt your credit rating. I was told by a bank mortgage officer (sorry I can't cite a document) that credit rating algorithms consider "consumer" loans like 0% appliance loans and certain store-specific credit cards as a negative factor, lowering your overall score. The rationalization given was that that taking that type of credit is an indicator that you have zero cash reserves. The actual algorithms are proprietary, so I don't know how you could verify this. If true, it runs counter to the conventional wisdom that getting credit and then paying it off builds your credit score.

  • Will depend on the store the loan is from, some stores are well know to overcharge but then offer "free" credit, as they market to people with no savings, they are bad on your credit file. Other stores offer 0% credit for 12 months, hoping you will not pay it off and then have to pay lots of interest, these look OK on the credit report provided you pay them off. – Ian Jun 4 '16 at 13:00
0

There are lots of good points here already, but something that hasn't been mentioned yet is what would happen if the purchased items break or are somehow defective? Depending on the warranty and how trustworthy the company is, there could be an advantage to not having fully paid for the item yet when a defect is discovered, as it might incentivize the company to be more attentive to your warranty claim, since they are faced with knowing that you could stop making payments if they don't act in a timely manner. Note I'm not suggesting you stop making payments in this case, just that companies (and banks) are oftentimes more willing to work with you when you owe them money.

  • Depending on the country, there may be some laws regarding credit purchases that benefit you. Which I think applies automatically to credit card purchases. – gnasher729 Jun 2 '16 at 9:50
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    I doubt this would help. Usually 0% finance involves a separate company/bank. They pay the retailer, keep a fee and receive your monthly payments. They have no interest in the warranty. If you stop paying them you'll have a whole new set of problems on your plate. – paul Jun 3 '16 at 6:15
  • @paul - the independent banks collecting your money can still help you by putting pressure on the store to make good on their promises. I'd go as far as saying an independent bank has more pull than you individually, and therefore you're even more likely to get made whole when another bank is involved. (Similar to the protection a CC can offer.) – TTT Jun 3 '16 at 13:29
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    Dangerous advice. These are separate issues and typically entirely separate companies as well. Like defaulting on an alimony payment because the kid is getting bad grades, this will only get one into trouble without coming close to solving anything. – Pranab Jun 3 '16 at 15:04
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    @Pranab - I never suggested you actually stop making payments, in fact I don't suggest that. I see how you could think that though- I just clarified my answer. – TTT Jun 3 '16 at 15:10

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