THIS ‘free lunch’ is expensive. This is the time of year when we are bombarded by the advertising that tells us that we can buy the consumer durable goods with “no Interest and no repayments until the new millennium”.
So how are these deals funded?
There are two aspects to the funding.
The simplest process is to incorporate the funding costs in the price of the goods with the price increased by the amount of the interest payments that would normally have applied.
The effect of this is to ensure consumers are actually funding the borrowing anyway.
The other aspect on which stores rely is that at the time consumers purchase the goods they are entering into a finance
contract.
If repayment terms for the principal are not met within the required period, then the contract falls into place.
It is apparently common for Australians to be apathetic enough to forget about the repayments and lapse into the funding and finance contracts.
The rates at which the funding is offered are quite exorbitant, particularly in this low interest rate environment. Rates of up to 16 per cent are common.
The Ministry of Fair Trading has been diligent in its approach to these arrangements, warning that these packages do have their downsides.
Their warnings are based on the experience of having had complaints lodged by consumers on a regular basis in the past.
Unfortunately, they are in something of a cleft stick in so far as the complainants are concerned, usually being unable to assist.
In essence, there has been little or nothing of an illegal or unethical behaviour perpetrated by companies involved.
We as consumers need to be far more cautious in our dealings with corporations offering these deals.
The Financial Counselling Association and the Financial Counsellors Resource Project represent the people who enter into these arrangements and are then unable to go through with them.
Their peak time, as far as counselling is concerned, seems to occur around January, February and March of each year when the bills from the Christmas period come home to roost.
Some counsellors even tell of consumers doing without adequate food in an effort to continue repayments on consumer durable goods bought at Christmas.
The upshot of their experience seems to dictate that we, as consumers, need to be cautious and circumspect when we are entering into any of these contracts that promise a ‘no interest, no repayment’ arrangement.
As is often said, “in business, there is no such thing as a free lunch”.
