Consumer Loan

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Matthew1
Posts: 59
Joined: Sun Mar 06, 2011 11:17 pm

Consumer Loan

Post by Matthew1 » Sat Dec 09, 2017 10:49 am

Hi.

I'm preparing to buy some appliances that will run about $12K. The retailer is offering 24 months no-interest payments, with the usual catch of "if you don't pay in full within 24 months, you owe retroactive interest." They have auto payments available, so I'd just have it set up through my bank to pay in less than 24 months on a regular schedule.

I have the available cash, but the consumer loan would give me a little more breathing room. My credit score is 800+.

Should I be considering this type of loan?

Thanks.

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dm200
Posts: 16744
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Consumer Loa

Post by dm200 » Sat Dec 09, 2017 10:54 am

Matthew1 wrote:
Sat Dec 09, 2017 10:49 am
Hi.

I'm preparing to buy some appliances that will run about $12K. The retailer is offering 24 months no-interest payments, with the usual catch of "if you don't pay in full within 24 months, you owe retroactive interest." They have auto payments available, so I'd just have it set up through my bank to pay in less than 24 months on a regular schedule.

I have the available cash, but the consumer loan would give me a little more breathing room. My credit score is 800+.

Should I be considering this type of loan?

Thanks.
Will they accept a discounted amount for cash?

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whodidntante
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Joined: Thu Jan 21, 2016 11:11 pm

Re: Consumer Loa

Post by whodidntante » Sat Dec 09, 2017 11:04 am

A 0% loan is a profitable investment in itself. The reason is, you get money today, and you pay it back with inflated dollars. Most of the time the USA is experiencing inflation.

There is also the opportunity cost in handing over the money today. If you're loss averse, you might want to park the money in something risk free like a CD. If you're not loss averse and you have sufficient liquidity, you can take full risk with the money, equities, or whatever you might like as an investment.

The only thing I see that is somewhat concerning -- 12k for appliances? I've never spent close to that myself. To each his own, but scaling back might be the biggest opportunity here.

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Watty
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Joined: Wed Oct 10, 2007 3:55 pm

Re: Consumer Loan

Post by Watty » Sat Dec 09, 2017 11:12 am

dm200 wrote:
Sat Dec 09, 2017 10:54 am
Will they accept a discounted amount for cash?
+1

Or you could buy them with a credit card and get at least a 2% rebate. You would of course pay off the credit card right away.

I agree with the comment that $12K is a LOT to pay for appliances, especially if paying cash for it would make you concerned about your "breathing room". You may also not need to buy them all at the same time if they are replacing working appliances.

aristotelian
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Re: Consumer Loan

Post by aristotelian » Sat Dec 09, 2017 11:34 am

Take the loan. Put the money in 18 month CD. Pay off with the CD proceeds and pocket the interest. Up to you if it's worth the hassle for $200 or so. If you can make the loan payments with CC your return might be double that.

Matthew1
Posts: 59
Joined: Sun Mar 06, 2011 11:17 pm

Re: Consumer Loan

Post by Matthew1 » Sat Dec 09, 2017 2:06 pm

Thanks for the responses. No, cash discounts are not available in this case. And yes, this is way too expensive for an appliance! Not too much of a choice though— replacing a built in refrigerator (Sub Zero) and there are only a handful of options, all of them super expensive!

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dm200
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Location: Washington DC area

Re: Consumer Loan

Post by dm200 » Sun Dec 10, 2017 9:41 am

The 12,000 is not "free" to the merchant - the money must be "borrowed" in some sense. The merchant is getting some amount less than $12,000 immediately in exchange for an intermediary getting 12,000 over 24 months.

If the interest rate were 6.00%, 11,281.40 is the cash now equivalent.

If the interest rate were 10.00%, 10,935.40 is the cash now equivalent.

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