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I noticed on the Samsung online store that they are offering a 0% APR monthly plan for Galaxy S8 devices in the UK.

I assume that applicants will have their credit checked, but how does this offer benefit Samsung? Are they hoping people will stay with the service after the first 24 months (when I presume the APR will be bumped up), or could it just be a marketing ploy to get their devices in peoples' hands to make up for last year's exploding phone controversy?

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    You are aware that 0% APR doesn't mean that the phones are free, right? – Ben Miller - Remember Monica Sep 14 '17 at 12:58
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    @BenMiller Yes I'm aware but I feel a company would want some financial incentive to what is essentially a small loan. – rabathehutch Sep 14 '17 at 13:02
  • Related (possibly duplicate) - money.stackexchange.com/questions/84030/… – Matthew Steeples Sep 14 '17 at 13:18
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    Also in this case, you buy directly with Samsung, which means they get all the money, instead of buying through a merchant, which would keep also part of the money as provision. So even if Samsung offers 0% here, they have more money in the end than if you would buy at a merchant (or not at all). – dunni Sep 14 '17 at 15:44
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    "how does this offer benefit Samsung?" It benefits them because you don't buy iPhone. – el.pescado Sep 15 '17 at 7:02
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This is more a question about economics than about personal finance.

The answer, though, is straight-forward. Samsung makes enough profit on the phones that they are willing to eat the costs of a 0% loan, with the attendant risk of non-payment and the loss due to inflation. By offering financing, they expect to sell more phones.

So, it's a slight cost to Samsung, but one they can easily afford due to the markups and increased volume of sales.

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    +1 ... This will likely lead to the Phone Market Bubble of 2022 where governments will have to bail out smartphone companies. – interesting-name-here Sep 14 '17 at 16:17
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    A minor nitpick, but it's cost of capital rather than inflation that will be the loss (in addition to defaults, as you say). – JBentley Sep 14 '17 at 16:19
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    @GibralterTop Not to spoil your joke - but if you read the smallprint at the bottom of the page, it says Close Brothers Retail Finance are the credit provider. I would guess Samsung has offloaded the credit risk: smartphone CDOs anyone? – richardb Sep 15 '17 at 7:17
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The financing is built into the price. I do not have hard facts, but I strongly suspect that very few people buy brand-new smartphones at full price upfront. Most pay a monthly installment to the carrier or retailer equal to 1/24 of the full price, which in effect is "0% financing for 2 years". Samsung might be able to advertise a lower retail price and then offer financing at some rate of interest, but from a marketing standpoint, offering "0%" financing makes it feel like you're getting "free money", when in fact it's built into the overall price.

Which sounds better, buying an $840 phone with 0% financing for two years or buying an $800 phone at 4.85% APR for two years (both have a $35 monthly payment)?

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  • In Europe most people do buy phones up front. – JonathanReez Sep 15 '17 at 10:49
  • @JonathanReez That's surprising - even €800 smartphones? – D Stanley Sep 15 '17 at 13:23
  • Some probably get a loan, but getting a phone from your operator is less common than in the US. – JonathanReez Sep 15 '17 at 13:36
  • @JonathanReez That wasn't my experience. The Netherlands even went through a big exercise to make the cost of "free" phones included with contracts more transparent for consumers because so many people got their phones that way. – Eric Sep 17 '17 at 6:00
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Having just purchased an upcoming Samsung phone using their 0% interest I can tell you that the justification is to give you credit. I have the same with Best Buy which is 0% for a specific initial purchase. The bank (in the Samsung case is TD Bank) establishes a rotating credit line for you. The APR after is well established at the very high side of 29.99%. Nobody in their right mind should want to pay that much interest on any purchase. My last car purchase was below 3% APR.

Additionally the introductory rate will still calculate their 29.99% interest as if it existed since the first day of credit and will be applied to your balance should you ever be late on any single payment. At that time the interest is factored in as if it were always there and payments are adjusted accordingly.

You see, the bank wants you to pay their high interest rate. So they entice you with the 0% and hope you either finance more on that credit line (exempt from the promotional rate) or miss a payment and they can hit you with a whammy.

Specifically the question asks how this offer benefits Samsung. To answer that portion; it ensures a sale at full retail price of the phone. Samsung is just an agent between you and the bank. The bank takes on the risk for a potential high reward.

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    Did you actually get a line of credit that you can charge other things against? Not questioning, but I hadn't seen that type of agreement - just the monthly installment plan. That definitely adds another layer to the answer. – D Stanley Sep 14 '17 at 18:58
  • It may be just limited to Samsung but I could use it to buy more items from Samsung. Samsung can charge those items to that credit. I have not attempted to make use of it anywhere else. It does count as revolving credit where it can take additional charges. – Nathan Grass Nov 15 '17 at 17:43
  • I did obtain similar credit from BestBuy some time ago at 0%. I can get 0% on new purchases at BestBuy and I can use that credit card outside of BestBuy. I had to opt in to get the card that allowed me to use it outside the store though. Otherwise it would have only been useful in the store, not that I have ever used it anywhere else. – Nathan Grass Nov 15 '17 at 17:47

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