I noticed on the Samsung online store that they are offering a 0% APR monthly plan for Galaxy S8 devices in the UK.
I assume that applicants will have their credit checked, but how does this offer benefit Samsung? Are they hoping people will stay with the service after the first 24 months (when I presume the APR will be bumped up), or could it just be a marketing ploy to get their devices in peoples' hands to make up for last year's exploding phone controversy?
This is more a question about economics than about personal finance.
The answer, though, is straight-forward. Samsung makes enough profit on the phones that they are willing to eat the costs of a 0% loan, with the attendant risk of non-payment and the loss due to inflation. By offering financing, they expect to sell more phones.
So, it's a slight cost to Samsung, but one they can easily afford due to the markups and increased volume of sales.
The financing is built into the price. I do not have hard facts, but I strongly suspect that very few people buy brand-new smartphones at full price upfront. Most pay a monthly installment to the carrier or retailer equal to 1/24 of the full price, which in effect is "0% financing for 2 years". Samsung might be able to advertise a lower retail price and then offer financing at some rate of interest, but from a marketing standpoint, offering "0%" financing makes it feel like you're getting "free money", when in fact it's built into the overall price.
Which sounds better, buying an $840 phone with 0% financing for two years or buying an $800 phone at 4.85% APR for two years (both have a $35 monthly payment)?
Having just purchased an upcoming Samsung phone using their 0% interest I can tell you that the justification is to give you credit. I have the same with Best Buy which is 0% for a specific initial purchase. The bank (in the Samsung case is TD Bank) establishes a rotating credit line for you. The APR after is well established at the very high side of 29.99%. Nobody in their right mind should want to pay that much interest on any purchase. My last car purchase was below 3% APR.
Additionally the introductory rate will still calculate their 29.99% interest as if it existed since the first day of credit and will be applied to your balance should you ever be late on any single payment. At that time the interest is factored in as if it were always there and payments are adjusted accordingly.
You see, the bank wants you to pay their high interest rate. So they entice you with the 0% and hope you either finance more on that credit line (exempt from the promotional rate) or miss a payment and they can hit you with a whammy.
Specifically the question asks how this offer benefits Samsung. To answer that portion; it ensures a sale at full retail price of the phone. Samsung is just an agent between you and the bank. The bank takes on the risk for a potential high reward.
