0% interest free loans vs credit card

Thoie

Not an issue, just wondering what other people's thoughts are on this.

Let's say you're going to buy a sitting room suite for €3k. The store you're buying from has a 0% interest free credit facility, where you're taking out a 0% interest loan with a 3rd party. You can pay this back over any period between 6 months and 3 years. There are no penalties for paying the loan off earlier than the initial term.

Alternatively you can put the entire purchase on your credit card. For the sake of argument let's say the interest on your card is 10% (yes, there are cheaper rates out there, but 10% is easiest to do maths with).

So, if you can pay the loan off over 6 months @ €500 pm, the finance from the sofa company costs you nothing - your total bill is still €3k.

If you do the same on your credit card, it ends up costing you in the region of €3090.

The finance company wants at least a 10% deposit, and allows you to start your payments when the suite is delivered. With the credit card you'd also pay a 10% deposit up front, and the balance on delivery.

Which deal is better? The finance saves you €90 over 6 months (or more, if you were going to pay over a longer period). The credit card gives you some protection if the sofa company goes bust, or various other mishaps.

As the finance company is separate from the sofa company, what would happen if the sofa was never delivered? Would they insist that you pay off the loan anyway?

Nody

The zero finance deal is obviously better as not only do you pay less but your payments are spread over time. Having said that I'd question anyone who'd loan for such type of item; saving for a few months and paying it cash offers the best option of actually haggling with money in hand or if you can't afford that you should really ask yourself if you need it...

Thoie

I'm with you, but on the basis that a lot of people do go for these kinds of "deals" in the run up to Christmas, I thought it would make an interesting discussion and help highlight the pros and cons of finance deals vs credit cards, and should probably have included vs cash in that.

For example, if you've saved up, and pay your deposit with cash, and the company goes bust, you're unlikely to get that deposit back. However even if you have the full €3k shoved down your socks, paying the deposit on your credit card (and then paying it off the card immediately) gives you some protection.

ytpe2r5bxkn0c1

0% deals are more expensive to start with. If you have the money saved up you can haggle a reduction in price, which can be considerable. Pay by Card to get the protection it offers and then pay off the card before interest becomes due. Quid's in every time, in my experience. The starting price on 0% deals is inflated to begin with.

delahuntv

No such thing as interest free loans - its paid for in the price of the goods.

As the furniture companies are selling a good few, they will get an interest rate of probably
6%-8% and that is simply added to the price.

If paying by cash / card on something that has an interest free offer, I'd look for a discount of 10% if I wasn't availing of the offer.