Tags: zero percent | financing | deals | retailers

WSJ: Rate Hike Makes Zero-Percent Financing More Painful for Retailers

Image: WSJ: Rate Hike Makes Zero-Percent Financing More Painful for Retailers

By    |   Thursday, 23 Mar 2017 11:26 AM

You’re not the only one to suffer a little financial pain after the Federal Reserve’s recent quarter-point interest rate hike.

All those years of retailers and manufacturers offering no-interest financing offers for nearly any product or service will likely absorb the extra cost on no-interest purchases, hoping the rate boost is a sign of an improving economy, The Wall Street Journal reports.

“The cost of providing 0% financing varies from company to company, but generally retailers pay a middleman—usually a bank or finance company—a few percentage points of a product’s purchase price upfront. The practice is known as 'buying down the rate to zero' because retailers are in effect footing the financing costs for their customers,” the Journal reported.

The upfront fees retailers pay are usually linked to a short-term London interbank offered rate, which follows federal-funds rate. The six-month Libor has risen to 1.43% from 0.9% a year ago, according to Bankrate.com, as the fed-funds rate has risen by half a percentage point, the Journal expalined.

The 0% deals will get more expensive, Mike Rittler, head of retail card services at TD Bank, which provides no-interest financing to customers of 25 U.S. retailers, including sellers of furniture and tractors, told the Journal.

“Cash has been free for so long that everyone has been able to offer these no-interest deals,” David Bassuk, a managing director and co-head of the retail practice at consulting firm AlixPartners, told the Journal. “As it becomes more expensive for companies, the game is going to change.”

Tc be sure, Bloomberg Gadfly Lisa Abramowicz recently detailed just how much the game for companies is changing.

"Companies are boosting debt faster than their revenues. Retailers are going out of business, with more insolvencies expected in the near future, which will inevitably lead to deteriorating shopping-mall values. Energy companies arefacing more pain as oil prices start sagging again. And some car buyers and online borrowers are having a harder time repaying their debt than investors expected," the Gadfly explained.

"Fund managers are clearly getting worried these small tremors will lead to bigger consequences, especially at a time when yields on riskier assets are relatively low."

(Newsmax wires services contributed to this report).

© 2017 Newsmax Finance. All rights reserved.

   
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Companies will likely absorb the extra cost on no-interest purchases, hoping rate boost is a sign of an improving economy
zero percent, financing, deals, retailers
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2017-26-23
Thursday, 23 Mar 2017 11:26 AM
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