by tblake » Thu Feb 24, 2005 7:54 pm
Suzuki entered into an exclusive financing agreement with HSBC, effective April 2004. From a Suzuki website we submit the following:
"Any new Suzuki motorcycle financed on your Suzuki Finance credit card, subject to credit approval. Reduced Rate 9.95% APR is effective on these purchases for 60 months from the date of purchase if your Account is kept current. For purchases up to $10,400, your monthly payments will be $99. For purchases between $10,400.01 and $13,500, your monthly payments will be $129. Thereafter, the remaining balance on this purchase will be subject to the regular payment calculation and either the Standard Rate APR(17.9%) or, for Accounts not kept current, the Default Rate APR (21.9%) will apply. Minimum Finance Charge $2.00. Certain rules apply to the allocation of payments and Finance Charges on your promotional purchase if you make more than one purchase on your Suzuki Finance credit card. Call 1-888-367-4310 or review your cardholder agreement for information. Offer ends 03-31-05. Offer valid in the United States excluding Hawaii. See your local Suzuki dealer for details. Offer subject to change without notice. "
Stop and think before you buy that new motorcycle. The dealers are advertising their specials quoting their low monthly payments using introductory interest rates and interest only payments on the financing. This means that making their low monthly payments will NEVER reduce the principal owed on your motorcycle. Depending on the term for which you qualify, you could pay two or three years and still owe the full purchase price. Motorcycle dealerships are trying to convince the public that some motorcycles hold their resale value better than ever, depreciating slower than in the past. But come on, does anyone truly believe their fine motorcycle will not depreciate at all?
What they tell you: New motorcycle purchases charged to your Suzuki Finance credit card, subject to credit approval. Reduced Rate 9.95% APR is effective on these purchases for 60 months from the date of purchase if your Account is kept current. For purchases up to $10,400, your monthly payments will be $99. For purchases between $10,400.01 and $13,500, your monthly payments will be $129.
Using $10,000 as the basis of the purchase, if every payment was made on time and the rate was fixed at 9.95%, it would take 220 months ( 18 years 4 months) to pay off the motorcycle. Will you still have and be driving your motorcycle in 18 years? The first year, using the basis and minimum payment, you may actually reduce your principal $193 and still owe $9807 on the motorcycle. Year two doesn't get much better. The principal balance owed the 24th month would be $9575. On the 60th month of making the minimum payments your principal balance would still be $8855.
Five years of minimum payments totaling $5940, in order to reduce the principal by less than $1200. This is the best case scenario. If you have gotten every statement, never made a late payment, and have charged nothing else to the account. Any deviation and the story is quite different.
Thereafter, the remaining balance on this purchase will be subject to the regular payment calculation and either the Standard Rate APR(17.9%)
After the expiration of the introductory rate, the minimum payment increases to $221.83, based on 2.5% of the balance. This new and higher payment $132.45 will pay interest and $88.93 will reduce the principal. One of the changes here is that making all future payments based on the starting balance at the 60 month mark will leave 61 more payments before the motorcycle is paid completely off and clear title can be obtained. If the monthly payment is reduced to the minimum payment every month, the term could be extended well past the 220 months used in the original calculation.
or, for Accounts not kept current, the Default Rate APR (21.9%) will apply.
If at any time a payment is late, the account will go immediately into default status. You will lose the special introductory rate and payment of $99 and the payments will rise to at least 2.5% of the balance owed. On a $10,000 balance, the payment would be $250.00 at 21.9% interest. On a $10,000 balance, the payment allocation would be $182.50 being posted to interest, $39.00 to late fee and $28.50 to principal. Interest accrues daily, so even if you made a payment large enough to pay the current balance when the statement was received, interest would accrue at $6.01 per day or up to an additional $186 that would then be due the next and hopefully final month.
Certain rules apply to the allocation of payments and Finance Charges on your promotional purchase if you make more than one purchase on your Suzuki Finance credit card. Call 1-888-367-4310 or review your cardholder agreement for information. Offer ends 03-31-05. Offer valid in the United States excluding Hawaii. See your local Suzuki dealer for details. Offer subject to change without notice.
The above financing describes the purchase of the motorcycle. The standard rate of 17.9% is charged on additional purchases using the Suzuki/HSBC financing. Be especially wary of optional equipment that may be added to the account. You could be charged at the standard rate for the helmets, saddlebags, wind screens, roll bars, back rests, etc. This is a lot of equipment at 17.9%. Generally payments are applied to purchases effected by the lower interest rates first. Unless you paid the account off in its entirety, you may never reduce the balance on the additional purchases and interest will accrue at a rate of 1.4916% per month.
Two helmets may cost you $300 at the dealership, but made as an additional purchase on your account would add an additional $65.70 per year. They would raise your payment by $7.50, but would be charged interest of $4.48 each month. The $7.50 would raise the minimum payment on the account to $106.50. This would all be posted against the motorcycle financed at 9.9%, leaving the balance of the additional purchases untouched. The increased payment of $7.50 would effectively be $3.00 after being offset by the accruing interest.
At Householdwatch, we get reports from people saying they have not received statements. When the statement from what should have been the first billing cycle is not received, the customer does not have contact telephone numbers or addresses for the credit account customer service. They would not have an account number to identify the transaction. Many reports indicate delayed processing and payment applications. The credit card company blames the United States Postal Service for the delay, however we suspect the delays are a deliberate ploy to collect more fees, negate interest promotions, and charge the higher default rates.
The account could go into default with late fees and over limit fees charged. Their balance becomes higher than the original purchase. While the account may not be disclosed as an "interest only" or "reverse amortization", it can easily become one when if the account goes into default. The minimum payment of $99 may not change, however the increase of interest rate would consume the payment completely, leaving a negative payment on the interest rate increase. That condition could potentially increase your balance by $83.50 every month. The payment is allocated in a manner that distributes it in the following order.
1. FEES (late fees and overlimit fees)
2. INTEREST
3. PRINCIPAL
Research the financing carefully before making your purchase. The only way to pay off the Suzuki HSBC account in a timely manner or before the introductory rate expires is to make higher payments. Our payment calculator estimates the payment at $212.22 on a $10,000 motorcycle in order to pay off the account within 60 months. Remember, this would only pay off the motorcycle. After 60 months you would still owe more for additional purchases. The example of two helmets would have a balance of more than $650 ($300 on the helmets plus 60 months accrued interest).
NO payment can be late. Every payment must be received, processed, and applied before the due date. Negotiate the "deal" carefully, alternative financing may result in different prices for the same products.
Calculations used in this article are estimates only. The examples given are provided to the reader for clarification and comparison, and may not match existing financing.
This document was researched and prepared by Drew.
