Delusional Financing

Delusional Financing

Zero-percent financing! Instant approvals with no credit check! Poor credit? Still get great rates!

There are ads online and in print which make no sense and are in fact clearly delusional or intentionally misleading; making statements and offers so far out of reality that how can they be taken seriously? Bait-and-switch tactics come to mind when lured into providing credit information, don’t qualify for the “preferred program” and then get stuck with double-digit interest rates and high documentation fees to pad the lender’s pocket. It happens in all industries but probably more so with lending. Another pet peeve are online payment calculators; in the late 90’s I worked with a company which had an online calculator with rates so low that only A+ credit would qualify and since Apple and Intel never applied, nobody ever got those contrived finance rates.

Let’s briefly take a look at reality.

1) Zero-percent interest? In order to borrow money, the entity lending it has to make money. Lending at below prime interest rates usually means they are making their profit up in the equipment they are selling. This is very legitimate and companies big enough to subsidize their sales in this manner can offer you a flexible program but don’t believe you are paying zero interest. Offer to pay cash and watch the price of your equipment get discounted; then you’ll see how much interest you are really paying.

2) Instant approvals with no credit check are for pawn shops; you bring in your gold watch, they check if it’s really gold and you get 10% of the value. A credit check or review means someone is actually evaluating key factors like time in business, profitability, cash flow, assets and experience. It takes skill and good judgment to consider all the elements when evaluating risk which is why underwriters are so highly regarded in lending circles; I haven’t seen a software program perform this function at a high level yet. If you get a “no credit check” offer, you better think twice.

3) Poor credit means something financially bad has happened in the past, whether it was your fault or not. So, if a business creates bad luck or attracts it, it’s still bad luck and shows up on a credit record. Lenders want a return on their investment based on the risk they take when lending money. You can get a decent rate with bad credit if you own an asset, like a building but then you’ll be asked to use your property for collateral so it’s not just your credit which is qualifying for that better rate. Bottom line – if you have poor credit and no assets, you will pay higher rates.

The adage, “if it seems too good to be real, it usually is” applies to financing offers which are outside of the industry standards for qualifying and approving requests for capital. Watch out for deals which engage you with a super-one-time-only program and then becomes so complex that you’re likely to accept a marginal finance offer due to emotional fatigue.