# Interest-free loans - scam?



## niall20 (10 Mar 2005)

I got an interest free loan from GE Capital that I intended to pay back in full when due. The first payment came out of my account and I went to pay the loan, only to be told my settlement figure increased when the first payment went out to include 6 months future interest.

I lost my credit agreement, so can't read it to check the conditions - they're going to send me a new one out. But in the meantime, this seems very circumspect. Even if it is the case, surely it should be made clear when you sign up for the loan. They also told me this mechanism of interest calculation is defined by the Irish Financial Services Regulatory Authority - who where disgusted to hear that, as they have nothing to do with it.

Can anyone shed any light on interest-free loans? It seems to be a bit of a murky world.


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## Chrisb (10 Mar 2005)

Not sure about these types of loans and their legality, but make sure you ask the company to send out a copy of the form that you signed, not just a recent new version that might have been changed since you signed.


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## CCOVICH (15 Mar 2005)

I have a similar loan with Friends First, no interest due as long as loan repaid in full exactly 12 months from the date of the letter of offer.  There is no penalty on making extra payments, but don't know what the situation would be if we repaid in full before the end of the 12 month period.  Without seeing the ts and cs, it's impossible to say whether they are entitled to do this, but it seems like they are penalising you for altering the pattern of cash flows, which could indeed be kosher.


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## ClubMan (15 Mar 2005)

Any chance it's a 0% fixed rate loan which includes penalties for early redemption? Seems like an odd beast but maybe a possibility? As this case illustrates it pays for punters to read, understand and retain the documentation relating to financial agreements that they take out. Other than being _"disgusted"_ did _IFSRA_ undertake to do anything else about this matter?


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## efm1 (15 Mar 2005)

CCOVICH,

Can you give us a little more info on your interest free loan?

Is this really another name for a Gross Roll up loan? where you make no monthly interest repayments but at the end of the term you repay the principal plus a lump sum of interest.

If not are Friends First giving away free money ?

Clubman - is this the same question you are asking ?

efm


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## CCOVICH (15 Mar 2005)

EFM1, this was a loan for a computer taken out through the now defunct Compustore.  No interest whatsoever is payable, _as long as the total amount borrowed is repaid at the end of the 12 month period_.  FF are indeed giving away 'free' money, but only if you make the lump sum payment in time, otherwise interest becomes payable at god only knows what rate in arrears.  We will have it paid on time, so hopefully this won't be an issue, as long as they don't lose our cheque for the lump sum at the end of the 12 months.  I guess they are hoping that people will miss/forget their payment, as the letter of offer clearly states that there will be no further correspondence from them during the life of the loan.  I don't think you would get this kind of deal from FF directly, probably have to enter a credit agreement through the seller.


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## Brendan Burgess (15 Mar 2005)

I checked out one of these loans with Dixons ( I think) and a lender, whose name I forget. I found it difficult to get information on the loan. They would not send me a copy of the loan agreement unless I was buying something, which I wasn't doing. 

If I remember correctly, it was structured as a very expensive Hire Purchase agreement - something like 27% APR. That's what you signed up to with an option to pay it off in full, interest-free, before a certain date. If you did not exercise this option, you simply had an expensive loan/HP agreement. 

Back to the original question. If they advertised an interest-free loan, they can't change the terms and conditions as soon as you draw down the first payment. That would be a breach of IFSRA's advertising Codes. You should pay off the amount borrowed in full and dispute the interest charge in writing. If you don't resolve it with the company, you can go to the Ombudsman for the Credit Institutions.

Brendan


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## Biggles (19 Mar 2005)

These are high interest loans on which there is merely an interest-free option.  

The agreement you sign at the outset provides for repayment over a number of years at a very high rate of interest.  Typically, you pay 11 months at the amount at which you normally repay the loan over (say) three years.  In advance of the 12th month, you're asked if you want to repay the entire balance or continue to make your regular repayment over the extended period i.e. interest free or interest expensive.  There are no options in between these two extremes.

Naturally, the finance companies are hoping you'll carry on at the monthly repayment to which you've become accustomed over the previous year.  If you choose to do so, you've no real cause to complain later.


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## Unregistered (21 Apr 2005)

Dell offer this type of loan alot in the UK

Basicaly 0% finance for the six months. If you pay the full amount by the end of the six months, no interest is charged and the loan is closed.

However the 6 month period usually concides with a time of the year when people are usually strapped for cash eg January. 

If you dont pay the full amount, the loan rolls over into a 36 or 48 month agreement with an interest rate of 17.9%

Nasty if you dont know what your getting into to.


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## RainyDay (21 Apr 2005)

Unregistered said:
			
		

> However the 6 month period usually concides with a time of the year when people are usually strapped for cash eg January.
> .


Surely the timing of the loan isn't in the hands of the lender, it depends when the purchase was made?


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## CCOVICH (21 Apr 2005)

You would think so, but the thing about the loan we got from FF was that it started from the date we received the letter and loan agreement NOT the date we actually bought the computer.  This letter didn't arrive until 6 weeks after we made the purchase, so I guess that the lender has some room to manoeveur when it comes to setting the end of the interest free period.

 I think this facility is great, as long as your savvy (and have the cash!) enough to pay off the loan at the end of the 12 months.  Like I said before, they do say in the letter that they _will not be writing to you again in this regard_, so it be easy to forget about it (the monthly dd is pretty small, so could be easy to miss).


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## extopia (21 Apr 2005)

Could it be that this kind of "interest free loan" is only offered on an overpriced product? i.e. could you have bought the item cheaper for cash up front elsewhere (as is the case with ESB shopelectric "pay over x months interest free on your bill"  for example).


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## CCOVICH (21 Apr 2005)

No, not in this case.  I checked the price in a number of other places, and we got a pretty good deal (with a few extras thrown in).  The computer is still working, so it wasn't dodgy. Point taken though, it's rare you get something for nothing!

Other places where I've seen these kind of deals are furniture (buy now, pay 2006), and in Argos sometimes.  This is the only time I have ever used it though.


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## Unregistered (22 Apr 2005)

RainyDay said:
			
		

> Surely the timing of the loan isn't in the hands of the lender, it depends when the purchase was made?



Of course it is in the hands of the lender, you do the specal 0% finance offer in August, so you know 6 months later is January.


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## RainyDay (22 Apr 2005)

Unregistered said:
			
		

> Of course it is in the hands of the lender, you do the specal 0% finance offer in August, so you know 6 months later is January.


So you are saying that these offers are only available for very limited periods of of the year - right?


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## Fintan (24 Apr 2005)

RainyDay said:
			
		

> So you are saying that these offers are only available for very limited periods of of the year - right?



Yes and No

They do offer it alot in, especially when things are quiet, BUT in order to get it you need to be in the top credit rating class. At special times of the year eg. August they will relax the credit rating rules, and open it up to more people. 

To answer the orginal question, they are extremly useful if you know what you are getting into, but beware the shop owner offering free money.

RainyDay if you talk about this further, dont hesitate to PM me.

Cheers

Fintan


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