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Buying a bike - interest free
Ok - got the nod for a new bike but the catch is it has to be on interest free credit as I don't have the cash hanging around. Anyone know of a LBS bike shop that do interest free? GE would be ideal as I already have the card with plenty of credit on it. Bit limited as I was looking for a Giant Trance or Reign but could be swayed to another brand.
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but stay away from Flexirent. Sounds like a good deal initally but you end up paying double the price of the frame and never actually own it. Loan is the way to go, Personal worst case and interest free at best.
Many shops, including any Avanti Plus store use Certegy Ezipay. It's really interest free and is really no different or more hazardous than buying a fridge from Harvey Norman. So, is there a catch? Well, kinda...
One must come up with a one quarter of the total value of the bike, one must have a job, be over 18, have a good credit rating etc. Here's the real catch.
The price is the full retail price. There will be no discounts ( except advertised specials ) or freebies when getting finance.
So, if one fancies a 2010 Specialized FSR Comp, which is $4000, then one needs $1000 and the balance can be spread over two years I believe. Thats $125 per month. One can pay out early with no penalty.
Bike Addiction certainly used to offer a 0% interest finance option, and probably still do. They are also a Giant dealer so will offer Trance or Reign and a very good bike shop. Certainly worth going in for a chat.
Both of those options sound good - luckily or unluckily I am way over the age of 18 and have a job. So the Ezipay thing is only full price or shop discounted price i.e. old model going cheap? Bike addiction isn't too far away from me - I may pop down at the wweekend.
Cheers
Make sure you own the bike outright at the end with no residual payment. Also check about insurance during the loan - what happens if it's stolen. Some companies allow you to take out insurance in the load but if they don't make sure you have it. Don't want to end up paying for a bike for 2 years that get's stolen in 2 months.
The reason interest free is often full price is because the dealer pays a commission to the finance company, thus needs to maintain full price. Interest loans often give a commission to the shop, allowing them to give you a discount and still make the same money. At least that was the way it was when I worked in retail with finance some years ago.
Also read the fine print and make sure you don't default and pay it off completely. I have heard that if you default and don't pay it out in time the penalties are high and interest is then calculated from the begining date on the complete amount.
So what this means is there really is no such thng as interest free debt. Interest is a charge for the use of money. You either pay it on the loan, or you pay it in the form of discounts foregone.
If you can't afford to pay for it in cash, don't buy it. Do you really need it? No. It's a "nice to have". Not a need.
Going into debt to buy an asset (ie that makes you cash money today, or facilitates you making cash money today) can be justified, and the financially literate use debt in these circumstances to add to their incomes..
But going into debt for consumer spending is financially stupid. STUPID. It is living beyond your means - short term pleasure for long term pain. "Have it now, for a little monthly payment" is how they get you to put their financial vacuum cleaner into your hip pocket. Consumer debt is the modern slavery. Do you want to be a slave?
Don't do it.
But I wouldnt necessarily agree with that, the Harvey Norman things are a bit of a no brainer. In my instance last year I didnt have any savings what so ever at the time but was earning decent monthly wage and have paid off the laptop already. Well inside the time period. Yes they charge you a admin fee of like $3 but yeah if your earning and doing well these 0% interest fee can be good.
Financially it is stupid to buy any dramatically depreciating asset like a new car or new bike too but it doesn't mean no one should do it if it's worth it to them.
Borrowing for consumer spending might not make financial sense but as long as you understand the true cost of doing it (as Hawkeye points out you pay for it one way or another) and decide it is worth it to you then I think it's up to you to make that choice. The key is to really understand all the risks and costs (including those associated with default, early repayment etc) before making your choice.
Personally I am uncomfortable with borrowing for consumer spending but I did once borrow money to go travelling when I finished uni. I knew I would be earning enough to pay it back in future and the cost of borrowing was far outweighed by the once in a lifetime opportunity to take a year off to see the world. You can always get more money but you can't get more time!
You'd also be well advised to work out whether you are better off paying "zero" interest on a full sticker price bike than haggling for a good discount - end of model run out etc - and paying some interest on a credit card on the lesser amount. Or even getting a cash advance on your credit card and buying second hand. Depends how rigorous you can afford to be about reducing the credit card debt as quickly as possible. No finance terms to worry about (other than your card deal), but you should still think about insurance.
Rationalise it how you like: an inability to defer gratification and buying consumer goods on credit will result in the finance company putting their financial vacuum cleaner in your hip pocket. Keep doing it and you go broke. It is not what financially intelligent and responsible people do. It's about setting up habits that help you and don't hurt you, and it's pretty fundamental to having the kind of life you want in the medium and long term.
You may be interested to know that General Motors does not make its money selling cars. For them, cars are just the bait. The finance contract is the fish thay aim to catch. For the last many years they have made most of their money on providing car finance. Financiers are not your friends - and I work for one.
Do you really need to buy new? I have a bunch of really nice bikes in our stable. I haven't ever paid more than $1500 for any of them - all secondhand, all in the $3k-$5k price range if I'd bought new.
Re: the laptop - that is a different scenario if it is used to earn income, or used to acquire skills that boost your income. I wouldn't call that consumer credit. I'd call it smart.
But if it's just for recreational use, well, see my earlier comments.
My background is accounting and finance - I'm a qualified Certified Practising Accountant, and a property investor / trader.
That's all from me on the subject.
Blimey, wasn't quite the answers I was looking for but thanks for the advice.
I've had interest free purchases previously - usually based on a minumum purchase price such as $2000 from Harvey Norman. This has allowed the sales person to discount the items as long as the total was over the $2000. I have not had a problem in paying the full sum within the interest free terms either so in my mind I have done resonably well out of it - regardless if is was for consumer products.
Anyway, I guess my choice is buy a new bike today and pay for it over the next 2 years, or save up in the next two years and buy the bike at a cheaper price. Just means I will be riding a crap bike for the next two years - I will have to evaluate how much that is to me.
Find out when you interest free period starts on your card and pay for the bike ( with shop discounts included etc) on the first day and youll then have 55 days no interest. second apply for a zero percent balance transfer to a new card you have shopped around for. and tada, you have no interest and a new bike ( with shop discount) for 8 months.
Kitrou1, have a chat with the guys at Bike Addiction. I purchased my Giant Reign from them several years ago using the interest free finance and I was very happy with the deal.
There's a list of 0% balance transfer cards here:
http://compare.businessday.com.au/credit-cards
Trouble is they usually have annual fees. Which, while we're on the subject of finance, I find incredible!
In the UK no-one pays for account or transaction fees on their daily bank accounts. You'd laugh at the bank if they asked you to! Annual fees on credit cards are almost unheard of.
It's beyond me how the banks here get away with it and find it disgusting. I refuse to be part of their profits and hence have several accounts and cards here (VISA, Amex, Mastercard) but don't pay an annual fee for any of them (not even on the Amex which gives Qantas points[1]!). I don't pay monthly or transaction fees on my everyday bank account either. Shop around - it is possible.
[1] Frequent Flyer points are a whole 'con' on their own mind - anyone else get screwed when Ansett went bust?
Just save a bit longer and buy it outright. It surely would not take you that long?
I hate it, $2 to use a ATM, annual account keeping fees etc etc.
Its such rubbish, I dont know why we should have to pay for the banks to hold on to our money. The account keeping fees do my head in most, I mean what do they do, apply like the 0.001% interest every month if your lucky and issue you with a electronic statement every month.
Personally I bank with Citibank now, 0 fees and you can use Westpac and St George ATM's as well for free which is good. Granted its not as good as Bankwest? as I think as they dont care which ATM you use but yeah. Banking with the big four here is for mugs.
The laptop is used for work and study purposes so yeah, a "investment" if you will.
Buying a new bike very shortly as well (hopefully this weekend, but its going to be a roadie), all in cash all my hard saved money. I dont think there is every a better feeling of knowing you have saved hard to purchase something. Including holidays and stuff like that. I dont have any credit cards now what so ever.
Logan.
Off topic: I guess the reason we pay all those outrageous fees is the same reason we pay 1/3 to 1/2 more for bike stuff here compared to shopping overseas: We let them do it to us! Sure, it was by stealth, but we still let them.
I pay a single $350 a year fee. That gets me a cheaper mortgage rate and all other fees are waived. The fee stacks up many times over just for the interest savings.
thats why I got in with a mate & got a new cassette, chain & brake pads for my bike & saved heaps compared to the bike shops here , overseas is much cheaper