Today, just about every major retailer offers no deposit, interest free finance, allowing consumers to purchase the goods and take them home straight away. Repayments on the goods are then made to a finance company over a period of anywhere from 6 months, up to 4 years.

Consumer finance is a great way to shop for people who are smart about their commitment and take the time to actually read through the charges, terms and conditions associated with the specified finance period.
All too often, shoppers get over excited about the prospect of owning merchandise that was out of their reach due to low savings, and they forget to read through the disclosure documents.

So how does consumer finance work from the shoppers and retailers point of view?

Interest free finance is like a credit loan. It has its own charges that comprise of monthly account keeping fees and in most cases an initial account setup fee. Usually the longer the finance term, the more fees are associated with it as they are in most cases charged monthly or with each repayment made.
When buying goods on credit, its obvious you end up paying more for those goods than if you were to pay for them with cash. This is a no brainer and I assume everyone is aware of that.  Retailers pay the fiancé providers a merchant servicing fee for each purchase sold on finance and the longer the term, the higher the interest charged.

So let’s take a plasma television being advertised as costing $2499. Let’s say a consumer purchases that television on 24 months interest free. The retailer will get charged a merchant service fee on the entire amount ranging anywhere from 9% to 12%. This equates to anywhere from $200 to $300.
Retailers have priced that television at $2499, to be able to cover the merchant service fee. They could sell the TV to you for that $200 - $300 less if you were paying cash. This is an important thing to remember when you go shopping for goods intending to pay cash for them, while the retailer is in an Interest free promo.  You have bargaining power when paying with cash, and if you don’t ask for the discount, you are getting ripped off.
Fees and repayments.
Its really important to bring to the consumers attention the fact that consumer free finance is issued by finance companies that in most cases provide other forms of finance such as credit cards.

The statements that you receive, asking for a monthly repayment will only ask you to make a minimum payment of roughly 3% of the total price. This is where people fall into the finance trap. If you continue to only pay the minimum required amount, you will not repay your purchase in time and you will be hit with massive interest charges ranging from 24% to 28% on the balance still owing.
Let’s take a look at the TV example again. You financed $2499 over 24 months. The finance statement will ask you for a minimum repayment of just 3% which equates to $74.97 where your actual repayments need to be around $105 to repay that loan in time.

Consumer finance is a popular product, a great tool for retailers to make expensive goods affordable for consumers. Provided that you carefully read through the terms and conditions of the finance offered, you will be able to afford goods that have previously seemed impossible to obtain. As long as you stay on top of your repayments, you are reducing the risks of overpaying finance fees.