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11 answers

Because hardly anyone pays off the whole balance in the first year, and then the interest is applied to the full amount of the original purchase, not the remaining balance.

2007-10-28 11:31:22 · answer #1 · answered by heebus_jeebus 7 · 1 0

That is a good question and as i am sure you are aware, nothing is free. when you make a "financed" purchase under those terms, the retailer usually pays a discount to the finance company that they outsource the contract to based on the sales price that you end up financing. even though the retailer has the items on sale, they still have a mark up on their cost, so they are typically still making money. part of the strategy is that when it comes time for you to payoff the bill, most people cant and the deferred interest is assessed on the contract anniversary date going all the back to the beginning of the contract and you end up paying for it anyway.

if the business is running the financing in-house, then they end up benefiting both ways, as they sell you the merchandise, make profit on that and finance the contract and usually make profit on that as well.

if you can pay cash, then you should ask the retailer what's their "cash discount" on the already advertised sales price. you might find you get can an additional 8-12% off the price.

2007-10-28 18:43:25 · answer #2 · answered by loanman 4 · 0 0

It's a defer payment. That means by the time you pay your bill thinking that you don't have to pay interest, interest is continuing accrue during that time unless you divide the money you owe and making payment each month until the dead line then you don't have to pay interest.

If you do not make any payment in one year, you will pay high interest when you start making payment after one year.

Retailers have to borrow money to buy merhandise to sell it to you. They already put out the money upfront. They can't afford to sell it to you with zero interest. That is a good marketing tool to lure the customer in thinking that they don't have to pay interest.

2007-10-28 21:19:33 · answer #3 · answered by Prenn 3 · 0 0

That just shows you what kind of profit they are making on a car..... Like they buy it for $10,000 and sell it for $35,000
so they get their $25,000, just at a rate of $5,000 per year over 5 years.

Therefore they sell a LOT of cars..its the volume that keeps them going....Plus, how many cars are they going to sell if they DONT offer this deal..how many people can plunk down 35,000 for a car in cash??


If you are talking furniture..they are also making a killing with a huge markup- and also the interest might be free for a year, but its like 30% after that!!! Since the people can't afford the furniture NOW, they won't be able to afford it in a year either..and so they have to pay ridiculous interest rates.

2007-10-28 18:34:22 · answer #4 · answered by zanthus 5 · 0 0

Usually if you don't pay it off by that year or however long that period is, they DO start charging you interest. Plus, it's the same as if you flat-out just paid cash for the items- they mark up the price anyway to make a profit, regardless of getting financed or not They always do a credit check before lending this way too.

2007-10-28 18:29:54 · answer #5 · answered by BlackDahlia 5 · 0 0

they have a large mark up to start with.
they may use a third party finance company and get paid immediately as some 1 year interest free options if you do not pay the balance in full at the end of the year they will charge you the whole years interest in one go and compound interest from then on.

2007-10-28 18:31:59 · answer #6 · answered by robert h 3 · 0 0

If you fail to pay the whole thing off before the anniversary date, you get hit with interest for the whole amount, starting from day one.

In some cases, like furniture, the merchandise is so overpriced it more than covers finance charges.

2007-10-28 20:12:47 · answer #7 · answered by bdancer222 7 · 0 0

because they know u will mess up some how and then u owe interest for the whole amount and year.
read the fine fine fine print on day 366 u owe the balance plus interest if not payments credited b4 day 364.

2007-10-28 18:31:56 · answer #8 · answered by Anonymous · 0 0

They charge enough for what they sell so that the price includes what it costs them to buy it and what it costs them to finance it. It is not really no interest. They just include the interest in the regular price.

2007-10-28 18:33:58 · answer #9 · answered by StephenWeinstein 7 · 0 0

Read the fine print nothing is free BUYER BEWARE

2007-10-28 18:30:19 · answer #10 · answered by Grand pa 7 · 0 0

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