Is There Really Such A Thing As Free Money?
The short answer is, “No.” So what is going on when you’re being presented with a zero percent financing deal? In this post, we will provide you with some information about the true cost of zero percent financing, dispel a myth or two, and hopefully help you to save some of your hard-earned money.
The Cost of Doing Business
It really should be pretty self-evident but businesses have to make a profit. Sure, some businesses may be able to float things for a while but without profitability, but that house of cards will eventually collapse. At Houston Window Experts, after all of our operating costs are covered, our target profit margin is a range of 15% to 22% depending on the size of the job. As long as we fall within that range the company will continue to be healthy and, more importantly for you, be around years from now to honor our workmanship warranty.
Anytime that a salesperson tells you that they’re willing to reduce the price so much that they’re going to lose money on your project, it simply isn’t true. It’s just a tactic to get you to buy…don’t fall for it.
The Appeal Of Zero Percent Financing
We’ve all heard Zero Percent Offers with no payments for 18 months, 24 months, or 36 months and there are plenty of things to like about deferring payments for a period of time. Maybe you’ve got a big bonus coming at the end of the year. Or you need to see what the stock market is going to do. Perhaps you’ve got an opportunity to take part in a financial venture and you’d rather have your window money make you some extra cash before you pay the windows off. It’s just human nature to take advantage of what we see as beneficial.
What Is The Cost Of Zero Percent?
Somebody has to pay for that zero percent interest rate, and that somebody is you. For the sake of illustration, let’s say that “Company A” needs to make $2000 profit on a window job that they’ll spend $5000 on windows and $3000 on labor. That means that they need to price that job at $10000 so after their expenses, they have a $2000 profit leftover. Of course, it’s much more nuanced than that but we’ll keep it simple for this example.
In order for “Company A” to even offer you that zero percent rate they had to buy it from the lender. Yes, the company actually purchase your lower rate from the lender. Depending on the customer’s credit rating and the amount of the loan they will pay anywhere from 5% to 18% to secure the zero percent rate.
Who Pays For The Zero Percent?
Well, you do. The company that you’re dealing with will need to bake that cost into the bid so after materials, labor, and the cost of the financing they can still walk away with the profit that they need to stay in business. There’s nothing inherently wrong with that, but what does bother me is when they aren’t transparent about it. If they act like it’s “free money” or they’re losing money that’s when it’s shady predatory tactics. It’s things like this that give our industry a bad name.
How We Do Zero Percent Financing
In a word, it’s that transparency that I was talking about. Yes, we do have some zero percent options, but we’re going to be upfront and honest about the costs associated with it. If it makes sense for you to defer the payments for a while then take advantage of it. At the same time, if you choose to pay cash we can offer you a 5% discount since we don’t need to pay for a financing rate or credit card processing fees.
Keep in mind that if you’re getting offered a zero percent rate and you plan on paying cash then you really need to get them to drop the price, they probably have 5% to 10% built into your bid. They aren’t very likely to mention that when you pull out your checkbook, it’s just more money for them. Just remember that there are a lot of businesses out there that do not have your best interest at heart. If they can squeeze you for a little more, they will.
That’s just not how we operate. Yes, we need to make a profit to stay in business but we don’t put profits above all else. We give the needs of our clients the highest priority. If you take care of your customers then the profits will come.