Tick, tick, boom too
Four years ago, on 16 December, a family put almost an entire house’s worth of stuff on tick.
It was all for just $150 a week, which must have sounded too good to be true at the time. And since it was that festive time of year, I’m sure that had something to do with it. (Hopefully it was all delivered in time for Christmas morning at least.)
There was practically a partridge in a pear tree:
- A lounge suite
- 32, 42, and 43-inch televisions
- Two stereos
- Two computers
- A glass-top dining table and eight chairs
- Two fridge/freezers
- A microwave
- A glass-top coffee table
- A washing machine
- One queen bed, one double bed
- Two dressing tables and mirrors
- And a three-quarter marble pool table
This is just another example among the many anonymous credit contracts and balance statements that I’ve been going through – examples of borrowing gone terribly wrong. (If you haven’t seen it, here’s the first tick-tick-boom post.)
When it comes to credit contracts, it’s a bit of a wild, wild West out there. It really pays to read the fine print and know what you’re getting into.
And while there’s no good data on how many of these agreements are being made, we’ve got our share of sometimes-unbelievable stories from budget advisers, who are the heroic paramedics stopping the haemorrhaging at the bottom of the financial cliffs.
What did they really sign up for?
Let’s unpack the numbers on our Christmas family. Using their house as security, they were able to borrow for $23,932 worth of goods. Like many of us who take on debt, they were probably focused on that minimum weekly payment amount: $150.
All that comes at a price, though. I’ve heard that there are furniture stores that don’t profit much from selling furniture, but rather from the finance deals they make when people buy.
Here are the family’s setup costs:
- Loan processing fee: $450
- Legal/registration: $540
And then there was also a ‘payment protection plan’, which is basically insurance that covers the lender but costs the borrower: in this case $2,270!
So our family was on the hook to pay back $27,192, far more than that $23,932 initial price tag.
And of course borrowing comes with an interest rate, which in this case was 25.5%. There was no interest-free period. This meant that over the loan term of 155 weeks, they were also agreeing to pay $11,551 – just in interest!
If you include the interest, the total now came to $38,743, and suddenly all those televisions and glass-top tables are starting to look really expensive. I wonder whether they would have still done the deal if they had been able to see that figure up front?
But we know the only number that was probably on display at the time: that $150 minimum payment.
But wait, it gets worse
Now these are credit horror stories, so unfortunately this situation gets worse. Christmas had come and gone when, despite making regular fortnightly automatic payments of $300, our borrowers somehow defaulted on the loan.
This meant that a default interest rate, typically 5%, was then added on. There were also fees for letters just to let them know the trouble they were in, at $40 a pop.
And this was the point when the loan started rolling backwards at times, with the balance growing instead of shrinking like all debt should. It does happen.
Tragically, by mid-May, there were repossession costs of $200, too.
What’s even more tragic is that this story did not stop there – the loan payments still had to be made and kept the family paying through a couple more Christmases almost up to last year’s.
Like I said, tragic. Spread the word: we all need to know what we’re signing up for!
Just the other day I came across a taxi driver who, without knowing what I do for a living, proceeded to tell me how he was juggling his repayments on his house and his taxi.