Monday, 23 March 2009

25% interest anyone?

You'd think an interest rate of 25% would be illegal, wouldn't you?

Well, read the fine print on this sign (ok, so you can't read the fine print - but trust me, it says that the annual interest rate is 25 point something percent).

I saw this in a large furniture retailer today. What set me off was the table of weekly repayments. You buy something for $4000, and then you make weekly repayments over 4 years of $38.42.

Thankfully, I went to school in the 1980's, so I can do sums in my head. Let's see - 4 years times 52 weeks is 208 weeks. 208 times $38.42 is...... way, way, way above $4,000. Closer to $8,000.

Actually, $7991.36, but my storeside maths was good enough.

After the shock wore off, I read the fine print, and that is where I found the 25% interest rate, courtesy of HSBC. Plus a monthly fee of $3.60 (I think) and an establishment fee.

You put that together with this story on home equity withdrawl in the UK, and you can see why so many people owe so much money, and why it is going to be some time before they have paid it down to the point where they can start spending again.


M said...

If my credit was so bad that I had to resort to store repayment schemes to buy furniture I can't imagine being able to afford even $9.61 out of my pay packet, let alone the $38.42. And that's before I even think about the devastation in the fine print.

And we wonder why the disadvantaged can't pick themselves up.

Anonymous said...

Still, let the buyer beware as they say. That so many seem to have forgotten this adage is partly why we got into this financial shit storm in the first place though. Nasty stuff by the retailer but capitalism isn't perfect.

Boy on a bike said...

25% interest implies a pretty mean default rate.

kae said...

The interest rate on the cards from the electrical and furniture goods places where they have so many months interest free is about 29% p/a. The idea, of course, is to pay the debt off before the interest rate kicks in... and if you do your sums you can do it. Problem is that so many people who buy this way don't make payments on the goods until after the interest starts. Idiots!

WV: flahsm

yup, expensive money is flahsm!