In the US, is charging all interest from the date of purchase if you miss the final payment by 1 day legal?

Question

I bought a Dell computer for around $3000 using Dell Financial. The plan is pretty straightforward: I made a small upfront payment, then about $65 per month, and after 12 months, I pay off the remaining $2100.

But here’s the kicker—if I miss that final payment deadline by even one day, they slap on all the interest from the original purchase date, which adds up to around $750.

So if I pay on time, no problem—it’s just the $2100. But if I'm just one day late, suddenly I owe $2100 + $750 = $2850.

What made it worse is that the monthly emails from Dell kept reminding me about the $65 minimum payment but never clearly mentioned the final payoff deadline. On top of that, the warranty email they sent listed a date about two weeks later than the actual purchase date, which completely threw me off—I thought I still had time, when I didn't.

I mean… is that even legal? I get charging a high interest rate like 24.99% or 30.99% for the actual time I’m late—like a few days or a couple of weeks—but retroactively applying a full year’s worth of interest over a tiny delay? That feels predatory.

Is there anything that can be done to avoid what seems like such an unreasonable (some might say immoral) charge of $750?

Answer 1

Yes it's legal - and it's written in the credit agreement (contract) you signed when you purchased the computer. The interest is deferred and is not charged if you pay off the total by the due date.

That feels predatory.

Predatory feels like a stretch to me. 25%+ annual interest is in line with most non-promotional credit card rates, and if the terms are disclosed and agreed to, I'd be hard pressed to call it "predatory". Certainly if they said "you'll pay no interest" without disclosing that the interest is deferred and the loan must be paid on time or the deferred interest is charged, that would be closer to predatory, but in my experience this was spelled out in the loan terms.

Is there anything that can be done to avoid what seems like such an unreasonable (some might say immoral) charge of $750?

Sure! Lots of ways to avoid it:

• Pay it all by the due date (set reminders a month ahead?)
• Pay for it all upfront
• Don't sign up for "no interest" purchases if you don't like the practice

In the end, it's your responsibility to pay off the loan to get the interest forgiven. I've done several of these "no interest" purchases, and I always make sure I set reminders to pay off the loan well ahead of the due date. I'm willing to take the risk in exchange for paying it off over time without interest. In some cases, I have asked for a "cash discount" for paying upfront instead of financing it, but this doesn't work very often, and never with major retailers, only with smaller retailers that have more control over pricing.

Answer 2

is it legal?

Yes.

This feels predatory.

Also yes. The business model of these lenders depends on borrowers like you not understanding the consequences of not paying the loan in full and on time. They're hardly going to go out of their way to give you any more information than they have to.

Nobody is protecting you from lenders legally taking advantage of you. You have to make sure you understand what you're signing and the consequences before you sign it.

Is there anything that can be done to avoid what seems like such an unreasonable (some might say immoral) charge of $750?

Pay it on time or don't sign the agreement in the first place. If you find yourself without cash to pay it off, it is likely worth borrowing from another source to pay it off. A cash advance is a very expensive form of borrowing, but it may be cheaper than being hit with a year worth of deferred interest and having a high interest rate besides. Cheaper forms of borrowing are better of course.

If you are slightly past the promo date and have the cash to pay it off, you can and should call, explain you've made a mistake, and ask if they will waive the interest if you pay in full immediately. You aren't entitled to relief but the worst they can do is say no. Anecdotally this has worked for some people who miscalculated their payoff amount and found a massive balance the next day.

Answer 3

I think there's a better way to think about this. They aren't slapping on a massive interest charge because you're a day late. You have owed that interest from the beginning. Under normal financing arrangements, you would have been paying that off as part of your monthly payment. Dell has offered to forgive that interest if you agree to meet certain conditions. By not meeting those conditions the special offer doesn't apply and the now-late interest is owed just like it was a standard finance agreement.

A few things I recommend to avoid these types of problems:

• When thinking about how much something costs or whether you can afford it, ignore any sort of conditional offer (mail-in rebates, tax incentives, special financing terms, etc.). Conditions mean that those aren't guaranteed. Plan/budget as if you won't get any of those things. If you happen to get one then that's a happy bonus. If you don't, then it's no big deal because that's what you planned for.
• Never make the "minimum payment" on anything. Those tend to keep you in debt for far longer than necessary, thus causing you to waste more money on interest. For something like this, I would take the total amount owed, divide it by 10, and pay that much each month. The debt would be cleared in 10 months instead of 12, giving you plenty of room to make a mistake. It would also eliminate the balloon payment at the end (I find it much easier to budget when payments are consistent).
• Try to avoid financing things through the company that's selling them. They generally aren't in the business of loaning money. They're getting a loan through some third-party lender, marking it up, and then offering it to you. You can frequently get better and more straightforward terms by finding your own financing (especially on cars). Financing terms for things like electronics tend to be closer to credit card interest rates. You can probably get a small personal loan from a local credit union for a fraction of that.

Answer 4

Is there anything that can be done to avoid what seems like such an unreasonable (some might say immoral) charge of $750?

There's probably nothing you can do this time about the company enforcing the terms that you agreed to when you bought the item, but going forward, there are some things you can do to avoid repeating this mistake. These can be applied to almost any situation where you're making a large purchase with a timed payment schedule.

1. If you haven't read the entire contract, don't sign it. If a pushy salesman tries to rush you into signing, tell them you're not signing until you have read it. Be prepared to get up and walk away.
2. If you don't understand the terms of the contract, don't sign it.
3. Ask questions before signing.
4. Open a spreadsheet application or a simple calculator and run the numbers yourself. The math involved in calculating interest is basic arithmetic that would have been taught to you before the age of 12 to 15 if not earlier: addition/subtraction and multiplication/division of fractions and decimals, plus exponents. You don't need to have memorized the Excel financial formulas if you understand how to get from one month's balance, payment, and interest to the next month's.
5. If you don't understand the math, don't sign the contract.
6. If the math doesn't work out (e.g. if it looks like you're going to owe a huge balloon payment at the end that you didn't expect), don't sign the contract.
7. If you've already signed the contract, periodically review the end date and the balance.
8. If you think you're ready to pay off the loan, contact the lender and confirm the due date and the payoff balance, which might be different from what you've calculated.

Answer 5

It doesn’t matter whether it is legal or not, because you are not going to court - too expensive and they have more expensive lawyers.

What matters is how to avoid the situation. Obviously selling you with 0% interest and hoping you miss the last payment is most cost effective for them. Just don’t do it. Either get a contract with no unacceptable penalties. Or get a bank loan with no penalty, and try very hard to get the computer cheaper. Or save the money until you can afford the computer without a loan.

Answer 6

That feels predatory.

Offering a discount for early payment, or charging a fee for late payment, are not normally considered predatory behavior at law.

From the point of view of the credit provider, charging a large fee for late payment isn't the profit side of the business. Missed and late payments are the loss-making end of the business, and there are large fees because there are large losses. Most people pay on time and make all payments, and a small profit is made from vendor or customer fees.

Occasionally some bank or credit provider (or, more typically, some entire segment of the banking or credit industry) increases penalties to the level where they actually start making a significant profit from it. Then there is public outcry, and a regulator steps in, and penalties are reduced to the break-even point again.

Exemplary damages (punitive damages, punishment damages) are not normally legal for consumer credit (or even for most commercial contracts), but the definition of 'punitive' is normally quite narrow. In my jurisdiction, banks have been allowed to include reasonable losses for "damage to business", including Capital costs and Regulatory costs, as well as processing costs.

Your credit provider is probably not making a profit on late/missing payments. That is in the large sense, of not growing bigger or paying dividends. Loans with late/missing payments are probably the really expensive part of their business, and they need the money just to pay their wages (including the grotesquely excessive Board and Executive payments)

Although in your case, you were just a couple of days late, and you made all the payments, I want to emphasize that from the credit providers point of view, you are wholesale product, and you fall into one of two categories: good payers, and bad payers. There is often (always in my experience) a little latitude in shifting you from one category to the other, but if you fall into the 'bad payer' bucket, you're in with the group of people who can't or won't manage their finances, and you're paying your share of the cost to carry that whole group.