Retail Financing: A Shell Game
Financing is the way of the world now days, very few people pay for products up front anymore. Budgets are calculated as money in and money out every month. If the money in is greater than the money out you are ok. Financing is advertised everywhere, from furniture to cars, and coming to our area fast and hard, Heating & Cooling.
I am not deriding financing as it puts safe and reliable heating and cooling in reach for nearly every home owner. It can be a fantastic tool that allows the average homeowner to purchase better equipment that may be out of their price range upfront, but due to the efficiency gains will pay for itself in the long run. However, it is beginning to permeate our industry and severely skewing the prices homeowners see.
If I were to say “It costs money to borrow money” How many people would be blown away shocked? Nobody, I hope. There is always a cost to borrowing money. The traditional form of financing has been loans issued by local banks. The bank puts up the full amount to cover the purchase and gets paid back over time with interest. However, with purchases being financed getting smaller and smaller, the financial industry has pivoted to offering “too good to be true financing.” The industry has foregone the traditional interest and now makes their money with hidden finance fees. Even though it costs money to borrow money, a merchant or retailer isn’t allowed to charge a customer that finances more money for the product or service! Banks charge the merchant/retailer for the cost of the loan and it is up them to cover that cost. Retailers have responded now by building finance costs into ever product and service. It is a shell game! Hide the finance fees.
Anytime a furniture store offers 36 month no interest financing on your new couch OR you can get $500 cash back or they pay your sales tax, guess what, THAT IS THE FINANCE FEE! Or your brand new truck is 60 months no interest OR you can get $2,500 cash allowance; FINANCE FEE! This is why you can never take advantage of both. It is a giant game of hide the money for the banks, the government is complicit in this whole venture because of the laws to protect the consumer?!?!?
Heating and cooling companies across the US are building finance costs into their quotes. If someone opts to pay up front in cash, they got suckered. They paid a full finance fee (usually around 10%+) hidden in the quote and they aren’t even utilizing the financing they paid for. That company is doing a cart wheel because they just padded their margin with no added benefit to the customer. In our opinion, that is just flat out deceitful and wrong.
Baumann & DeGroot has and will continue to swim against the current of the profit driven heating and cooling companies in today’s environment. We strive to keep costs of new replacement systems low enough for most families to afford out of pocket. When that isn’t feasible we do offer financing, to make sure every customer can provide reliable heating and cooling for their family. However, every step of the way I promise our company will be fully transparent about the costs associated with these financing programs. We promise to serve our customers with the integrity and honesty that our community deserves. (Our current 60 month no interest financing costs us 15% of the total purchase. That money is built in and passed down to the homeowner. ie. If the total system costs $4,000, with the 15% finance fee now comes to $4,600. Broken up into 60 monthly installments costs the homeowner $76.67 per month. This 15% equates roughly to a 5.64% APR.