Financing Apple products

[ajcarter]

Hi All,

I recently broke my old iPhone and am looking to get a new one (since an insurance claim is $175, and repairs are >$100).

My question is, which of the following financing options are better:

1. Pay for the phone in its entiretry. This options won't be an issue, I will just have to reduce holiday spending/shift money

2. Get the Apple iPhone Upgrade Program. I am not a big fan of the hard pull every year for them to start a new loan period.

3. Get the Apple Barclays credit card. I will just pay this off monthly, and ensure that I pay the full balance before the 0% interest period ends.

Personally, I think I would rather spread the payment over a longer period than just dump +/- $800 in one day on a device.

What are your thoughts/suggestions?

Thanks,

[Anonymous]

Any time a merchant offers to give you "financing" to buy their product, you should be very careful.  These are often tagged in the CRA database as "finance company" accounts.  Examples:

Buying a dining room set at Rooms To Go

Buying a big screen TV at Best Buy

Buying a washer/dryer at Lowe's

You pay nothing up front and perhaps no payments due for a while.

FC accounts are actually harmful to your score, even if you make perfect payments.  They are different  in this respect from other kinds of loans, wherein it looks good that you took out the loan and then slowly paid it off (e.g. an auto loan).

It's possible that option #2 will not be tagged as an FC account, of course.  Someone here may know.  But my own strategy is to always assume that if sounds like it might be tagged as an FC account (see the examples above) then it will be.  That's an overagressive expectation on my part but it is also simple and protects me 100%.

My own personal recomendation is #1.  You can do it, so do it.  Any 0% offer (even one that is certain to not be an FCA) gets you very little, given the current interest rates.  If the phone costs $800 and you get a 0% offer, which you pay off in one year, then the $800 you save up front gets you about $4 if you place that $800 in a high interest account and slowly pay the phone off.  And then you need to pay taxes on that $4, so maybe $3.  As a general rule, anything that involves forcing you to tighten your belt, reduce spending, etc (which #1 does) is an encouraging sign. 

That's just my take.  Obviously if others can confirm that #2 will not be tagged as an FCA then that's much better than it could be.

[ajcarter]

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@Anonymous wrote:

Any time a merchant offers to give you "financing" to buy their product, you should be very careful.  These are often tagged in the CRA database as "finance company" accounts.  Examples:

Buying a dining room set at Rooms To Go

Buying a big screen TV at Best Buy

Buying a washer/dryer at Lowe's

You pay nothing up front and perhaps no payments due for a while.

FC accounts are actually harmful to your score, even if you make perfect payments.  They are different  in this respect from other kinds of loans, wherein it looks good that you took out the loan and then slowly paid it off (e.g. an auto loan).

It's possible that option #2 will not be tagged as an FC account, of course.  Someone here may know.  But my own strategy is to always assume that if sounds like it might be tagged as an FC account (see the examples above) then it will be.  That's an overagressive expectation on my part but it is also simple and protects me 100%.

My own personal recomendation is #1.  You can do it, so do it.  Any 0% offer (even one that is certain to not be an FCA) gets you very little, given the current interest rates.  If the phone costs $800 and you get a 0% offer, which you pay off in one year, then the $800 you save up front gets you about $4 if you place that $800 in a high interest account and slowly pay the phone off.  And then you need to pay taxes on that $4, so maybe $3.  As a general rule, anything that involves forcing you to tighten your belt, reduce spending, etc (which #1 does) is an encouraging sign. 

That's just my take.  Obviously if others can confirm that #2 will not be tagged as an FCA then that's much better than it could be.

---

Thanks for the insights.

#1 Does seem like the best option, I usually pay off my credit/charge cards in full every month anyway, so I guess I can just put on a charge card and get some point and pay off at the end of next month.

I would like to get some more perspectives on option #2 as well, because it seems like (aside from the HP every time i upgrade) its fairly good deal, since I will be getting a "personal loan" to cover the cost of the phone and Apple Care+ for free.

[Anonymous]

Yup.  #2 is great as long as it is not an FCA, and folks here may well know the answer to that.

Best of luck!

PS.  Great to hear that you always pay your cards in full. 

[805orbust]

This may be redundant but doesn't Barclay's have an Apple Mastercard?

[RobertEG]

While consumer finance accounts were viewed, back in the day, as an indication that the consumer could not get more preferable credit with a major bank, and were thus viewed negatively by FICO, it is my understanding the the newer versions of FICO no longer ding for consumer finance accounts.

Many consumers will open consumer finance accounts, for example, to take advantatge of low or 0% financing, and thus they are not necessarily an indication that the consumer was using less favorable financing.

Hopefully, those more familiar with the guts of the newer algorithms will chime in.......

[Anonymous]

Thanks RobertEG!

Yes, I'd love it if someone else could chime in on this.  We'd had people here on the forum report FICO 8 scoring damage from CFAs during 2016 and 2015, which is the reason I mentioned it.  It's quite possible that FICO 9 no longer considers CFAs a problem, but I was thinking chiefly about FICO 8 (released in 2008/2009).  I'd love to hear that any of the following are true:

*  FICO 9 does not consider CFAs a bad thing.

*  FICO 8 no longer considers CFAs a bad thing, and that has been updated in all three CRA versions of the algorithm.

*  The old mortgage models no longer considers CFAs a bad thing (same CRA caveat as above).

[Anonymous]

Apple Upgrade Program will NOT show up as consumer finance on your report. It will not show up AT ALL. I have it. It doesn't report anything.

You get the HP when you apply which will be a small ding on your score but the tradeline itself will not report (unless you fail to pay I guess).

[Anonymous]

Awesome.  That's all the OP needs to know then.  Thanks Canadian.

If any scoring gurus see this thread and can chime in (as RobertEG suggested) on the more general question of FCAs, that would be great.

It wouldn't surprise me too much if FICO's statisticians still see a significant correlation between CFAs and risk.  My guess is that our OP is a rare case -- he is considering the use of merchant provided financing but nonetheless has plenty of cash available to buy the item up front.  More common would be a person who cannot pay for it up front -- i.e. a person who sees a big TV at Best Buy and wants to buy it even though he has no money to pay for it.  Such a person is typically living hand to mouth and still buying more and more stuff   If anything difficult happens financially he'll be a strong candidate for delinquency or outright inability to pay creditors.

Again, just speculation on my part, so if anyone knows the answer for sure I agree with RobertEG that it would be good to know.