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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.

Kate Gregory
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dotixx
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    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 01 '16 at 11:02
  • @montewhizdoh well, I don't have to remember paying and cannot do mistakes since it is directly withdrawn from my account. The only mistake I can do is forget to put the proper amount of money on my account ... But I'll be noticed by a SMS from my bank if my balance is negative so it is not going to last more than few days... – dotixx Jun 01 '16 at 11:22
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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 01 '16 at 12:54
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    Unless you have a specific goal (like credit building) it's better (less risk) to just pay cash. One example of a 0% card I had required you to purchase X worth of items in 12 months, or you would loose the 0%. You had to make the purchases at their stores, and often times, items on sale could not be purchased with that card at the sale price. Of course this was all barred deep in the service agreement, so you didn't really know until you got your first bill. Canceling the card had a $250 "closing fee". In short they didn't need interest to make money they got it other ways. – coteyr Jun 01 '16 at 16:02
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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 01 '16 at 16:04
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    Side note, I used to be a furniture dealer and my wife used to be a real estate agent. You can get killer deals on so-close-to-new-it's-ridiculous furniture by going with items that were used for home staging. They're usually high end (agent wants to make the deal and is willing to spend to do it) and it gets very, very little use. After it sells, often the agent just wants to get rid of it. You can save thousands on good furniture by doing this, even if it won't coordinate perfectly. I know this doesn't answer your question, but as long as you're being thrifty, I figured I'd pass that on. – corsiKa Jun 01 '16 at 16:50
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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 02 '16 at 01:33
  • Possible duplicate: http://money.stackexchange.com/questions/61178 – Reid Jun 02 '16 at 15:17
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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 02 '16 at 23:29

9 Answers9

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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.

Ben Miller
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  • 2 does not apply here since the credit company actually charges interests but the website where I want to buy my furnitures pay all the interests. And that website is also the cheapest place to get the things I want, I've checked. Thanks for ur answer anyway! Does your answer also applies on more expensive expenses (like 10k+ €/$) ? You'd also go for cash payment ? – dotixx Jun 01 '16 at 12:14
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    @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 01 '16 at 12:18
  • It's not that I'm uncomfortable spending that money, I actually thought it was more comfortable (slightly different ^^) because you can have immediatly something that would require months of saving if I wanted to pay it at once without using my "emergency savings". – dotixx Jun 01 '16 at 12:24
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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 01 '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 01 '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. – Arielle Lewis Jun 01 '16 at 13:15
  • @dotixx: If you mean your options are paying on a credit card and carrying a balance, or taking the 0% loan, then the 0% loan (assuming you can pay it off before it becomes non-0%) is almost always better. Yes, you might pay more than paying "cash" (swiping a credit card), but if you can't pay off the credit card quickly, you'd usually pay more in credit card interest than the price differential, because credit card interest rates are usually absurd. Buying cheaper/used/delaying the purchase is best, but if you need it now, and the price premium for 0% is small enough, 0% likely wins. – ShadowRanger Jun 01 '16 at 16:09
  • @DoyleLewis Yes, #2 is not always technically true. Good point about the loss leader. They may actually be losing money on that one sale, but on average will make it up in other areas (late payments, additional purchases with higher margins, etc) – jkuz Jun 01 '16 at 16:18
  • #4 is a big one; the automatic payments on our rental insurance failed due to a card number change, and the insurance's website was woefully unclear about our status, such that we lacked insurance when my fiancee's bike got stolen, despite having paid for it for over two years previously (when nothing requiring insurance was required). – KRyan Jun 02 '16 at 18:06
  • I don't understand the people who spend huge sums of borrowed money on real estate, and then buy used furniture because they want to avoid debt. – Aleksandr Dubinsky Jun 02 '16 at 19:59
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    @AleksandrDubinsky What's difficult to understand about people wanting to limit their exposure to debt? See my answer on "Is a car loan bad debt?" Just because you have taken out a mortgage on your home doesn't mean that it is smart to take a loan out for everything else. – Ben Miller Jun 02 '16 at 20:07
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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! http://www.bankrate.com/finance/credit-cards/0-financing-retailers-good-deal-2.aspx – Hannover Fist Jun 02 '16 at 23:32
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    @AleksandrDubinsky for many people realestate is an investment (expected to appreciate), or at the very least an attempt to avoid handing large sums of money every week/fortnight/month to someone else. How does borrowing money for furniture help with either of these motives? – NPSF3000 Jun 03 '16 at 00:55
  • @NPSF3000 I just have the image of NYC apartments that cost hundreds of thousands and have bare white walls, old kitchens, and poor furniture. I get depressed by people spending so much and having so little. Maybe that's just life in America (or in NYC). – Aleksandr Dubinsky Jun 03 '16 at 03:15
  • @AleksandrDubinsky Refusing to borrow doesn't mean that you go without; it simply means that you save up until you have enough to buy what you want. It's sad that so many people think that debt is required to buy anything or to have a good life. – Ben Miller Jun 03 '16 at 22:03
  • I think you'll agree there is a difference between debt on short-term purchases, and debt on long-term purchases. The latter more frequently makes sense, just like a business amortizing fixed costs. Furniture is definitely a long-term purchase, typically lasting over 10 years (and sometimes over 100). The amortized cost of good furniture vs cheap crap (that will probably also stick around >10 years) is not much for an apartment, and it makes sense to use credit in order to be able to purchase it, just like it makes sense to take out a mortgage. – Aleksandr Dubinsky Jun 03 '16 at 22:38
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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.

gnasher729
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    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 01 '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 01 '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 03 '16 at 15:32
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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...

paul
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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

mattumotu
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    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 01 '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 01 '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!

Nitin Alabur
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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.

Murch
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Lukas
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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.

TTT
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  • 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 02 '16 at 09:50
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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 03 '16 at 06:15
  • @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 03 '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 03 '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 03 '16 at 15:10
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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.

Germand Delatouche
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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.

Kengineer
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  • 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 04 '16 at 13:00