02-07-2011 10:36 AM
Came across a pretty good article on the execrable furniture sales industry; "10 Things Furniture Stores Won't Tell You." Here's the blurb about the problems with furniture credit (hope this is in the right place
"7) Our financing plans may do damage to your credit score.
No cash on hand to buy that dining room set? No problem. At least not for the retailers. Most major furniture stores now pitch financing programs to consumers – especially to those who don't pay with cash. To do this, most furniture retailers pair up with a lender, often for interest-free plans where the borrower pays zero interest if he or she makes each monthly payment on time during the promotional period. The pitch is often meant to make furniture appear more affordable. "They're doing this to make the sale if people don't have cash," says DeHaan.
But miss a payment and the interest rate spikes to 20% or more and it's retroactive to the original balance, says Sheryl Garrett, a fee-only certified financial planner. These plans, and others that feature deferred interest for a year, often wreck havoc on consumers' credit scores. When a shopper buys, say, $3,000 of furniture, their line of credit could be for the same amount – leaving them maxed out on that credit line, skewing their credit utilization ratio (size of debt compared to overall line of credit), which contributes to 30% of a FICO credit score. And that line of credit often drops in tandem with payments to remain maxed out until the account is paid in full. DeHaan says that furniture stores are now required, due to financial reform, to explain to customers – before they sign up -- the terms of their financing plan and what occurs if they miss payments or don't pay the entire balance during the promotional period."
02-07-2011 11:00 AM
I don't really understand how that is particularly shady or anything. Using credit has a cost- and a cost on the user.
The customers are not getting term loans.
And promotional APR terms like that have been around and are used forever.
That money is not free to lend. if you were offered 0% you should be seeing why the company is offering it. Offering a 0% loan to anyone is a money loser, so there has to be some profit or break even in there.
02-07-2011 02:54 PM
I'd worry more about it reporting as a consumer finance loan, which is harmful to FICO scores, although not a lot.
But most furniture stores now issue credit as some sort of revolving account, rather than an installment loan, and per the myFICO admin, CFL accounts are always installment, never revolving, so this isn't as big an issue as it used to be. CFL's now are more often unsecured loans from Citifinancial, Wells Fargo Financial, and so forth.
02-07-2011 09:37 PM - edited 02-07-2011 09:37 PM
I don't know that the financing is particularly "shady" (although some of the other practices seem to be); but I think it's a good idea for the consumer to know and understand what is being offered, and what the consequences are before accepting such a deal. Being dazzled by the "fantastic" no interest offers and not reading the fine print has gotten a lot of people into trouble.
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