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Who benefits with 0% financing?

Do you read the fine print when you are filing out finance forms? Here are some things you should know regarding the 0% financing for 12 or 24 months. It may be the bankers and not the consumers who are the winners in this game.

Retailers are taking a financial approach that’s proving popular. It is the offers of 0% financing for 12 or 24 months when shoppers buy big-ticket items like plasma televisions and washing machines. Even though such deals can lead to write offs as the customers drawn to them often have less discretionary income and are more likely to default; retailers feel they can live with the delinquencies. Yes, retailers are willing to do this because the delinquencies have less margin-killing than mark down merchandise.

Recent figures suggest that deep discounts alone aren’t enough to keep retail sales growing. Gimmicks are needed to draw the customer in and it is the 0% financing that brings them to the cash register.

It’s impossible to track just how many 0% offers exist, but retail sources say that they are on the rise. Why? Well, the deals are enticing. Free money has always been hard to turn down, no matter your income bracket. Those in a lower-income bracket are going to be saving money on something they would purchase anyway. For higher-income folks, why not, they deserve to save too.

But dig a bit deeper, and you get to the real reason. Over the past five years, retailers have sold off their proprietary credit card operations to financial giants like Citigroup and GE Consumer Finance. In 1999, 55% of store credit card balances were held in accounts operated in-house by retailers, according to The Nilson Report, a newsletter that tracks the payment card industry. By 2004, that figure had plummeted to 15 percent.

Big banks not only have more financial resources than retailers, but they are able to borrow money at cheaper rates. A retailer whose store cards are brought to you by a bank is able to get more creative with its promotions. Thus, we see more “0% interest for 12 months” type of deals.

It gets better and this is why consumers should read and know the financing terms on these offers. The banks make their money when the consumer does fail to pay off the balance in the allotted time. At that point, the unsuspecting consumer is hit with an exorbitant interest rate that can range from 18 -24 %. For the bank, such a customer becomes very profitable very quickly.

And there are more of those shoppers crowding the aisles today; according to the American Bankers Association, credit card delinquencies hit an all-time high of 4.8 % of all accounts in the second quarter of 2005.

Please read the fine print so that you are in the know when it comes to these “special” offers. If you do find that you need some extra money do a money search with CashUnclaimed.com. Unclaimed money could be yours for the claiming. Check it out.

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