How can the Samsung Upgrade Programme offer 0% APR?
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.
"First I want to be sure Op understands how ""Credit Utilization"" is scored as this confuses many folks here in the US.  There is no ""reward"" for charging money or carrying balances, only penalty.  If you have one credit card with a $10,000 limit and owe $8,000  you have an 80% utilization which will signal to banks that you are having financial difficulties.  (Anything over 30% on a single card is usually penalized significantly.)  The ideal utilization is something around 0, which is in the ballpark of the 5% Op mentioned.  Again there is never any direct benefit to your credit of spending a penny on any of your credit cards.*   Banks offer the best rates to people that pay off their balances each month or don't use their cards in the first place.  Why? Despite the system being imperfect in many ways, utilization is a good indicator.  Example: If you have a card with a  $10,000 limit and pay it off every month that speaks to you being a good risk. If you compared this person to the person above, who do you think would be the most likely to pay back a car loan? Finally, Utilization is a small part of the credit score.  I would call it more of a ""hurdle"" than a factor, at least concerning good rates and approvals.  Most of your credit, is based on length of history, paying on time, and having multiple types of credit. Real life example: I had a relative that had perfect payment history for decades.  They got divorced and started accumulating a balance.  The person got other cards with 0% apr to avoid the interest, but their balance only grew.  -They had to use the card to make ends meet, etc.  (3 kids, single parent)  They ended up filing a sizable bankruptcy a few years later.  This was one of the most responsible people I've ever known.  (Yes that statement will seem far fetched to someone else.  It was almost impossible to get them to file bankruptcy, even though there was no way to ever pay the money back.) The point?  Utilization shows a more 'current' picture than some of the other portions due.  -  Had those banks used the high utilization as a warning sign they would have saved a lot of money.   A 'fun' way of looking at credit: Sometimes I describe credit score as a popularity contest.  If you really 'need' money banks are not going to help you.  However if your credit shows everyone is lining up to loan you money, other banks are going to want in too.  ""Banks only make loans to people that don't need them."" *** Spending a lot on Credit Cards does sometimes have the indirect effect of getting balance increases that could have a slight increase in your score.  This happens  less than it did prior to the financial fiasco.  Also the effect of this is on the score negligible unless carrying a balance.  ( And the person carrying a balance also has a lower score anyways.)  Additionally someone charging less could probably get a similar raise if they asked for it.  (Raises vary greatly by issuer.))" 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And from other reports, people are cheering his departure ( [it's said that Forstall's coworkers were so excited to show him the door that they volunteered to split up his workload](http://www.theverge.com/2012/10/29/3574022/apple-scott-forstall-ios-6-maps-apology-letter)) so don't see how this is a bad move, other than Google or Samsung might pick him up, which I guess might be bad news for the apple crowd. When our 20yo Sony Trinitron died I researched all the Audio/Video forums and the consensus was that Panasonic Plasmas have the best picture. When I went into the department store to buy one they had a Panasonic and a Samsung LCD on display right next to each other and the difference in quality was noticeable (Samsung was noticeably better). At the time I had never really considered Samsung to be any good, but the quality and sharpness of the Samsung is undeniable. It actually took me two days to get over my cognitive dissonance and buy the Samsung because up until then I was 100% determined to buy the Panasonic. They are also the only brand that I have seen with little to no artifacts. Samsung is this generations Sony. If you think you can pay off the entire amount you borrowed over the next 12 month, then you're getting an unsecured loan at around 4% APR, assuming you're borrowing for the whole year.   That's pretty good compared to what you can typically get at the credit union.  However, if you only need the money for, say, 3 months, that 4% fee effectively becomes a 16% APR! And, the real trouble comes when you don't pay it off by the end of the 12 month and the standard rate kicks in. If you do use the convenience check, be sure to put in your calendars a reminder that the balance is due -- set the reminder about a month before the last billing cycle of your 0% period. Make sure you also have sufficient cash flow and an automated payment setup to make sure you always pay at least the minimum due on time.  Depending on your banking history, you might be able to get away with one missed payment -- but more likely, you'll be penalized as soon as you miss a payment by a penny or a day -- and the 0% loan suddenly becomes very expensive. Read all the fine print, make sure you understand them, and set up a system to make sure you can play to the rules of the game. But.. what I really want to know.... is it illegal, particularly the   clause REQUIRING a trade in to qualify for the advertised price? The price is always net of all the parts of the deal. As an example they gave the price if you have $4000 trade in. If you have no trade in, or a trade in worth less than 4K, your final price for the new car will be more. Of course how do you know that the trade in value they are giving you is fair. It could be worth 6K but they are only giving you a credit of 4K. If you are going to trade in a vehicle while buying another vehicle the trade in should be a separate transaction. I always get a price quote for selling the old car before visiting the new car dealer. I do that to have a price point that I can judge while the pressure is on at the dealership.. Buying a car is a complex deal. The price, interest rate, length of loan, and the value of the trade in are all moving parts. It is even more complex if a lease is involved. They want to adjust the parts to be the highest profit that you are willing to agree to, while you think that you are getting a good deal. This is the fine print: All advertised amounts include all Hyundai incentives/rebates, dealer   discounts and $2500 additional down from your trade in value. +0% APR   for 72 months on select models subject to credit approval through HMF.   *No payments or 90 days subject to credit approval. Value will be added to end of loan balance. 15MY Sonata - Price excludes tax, title,   license, doc, and dealer fees. MSRP $22085- $2036 Dealer Discount -   $500 HMA Lease Cash - $500 HMA Value Owner Coupon - $1000 HMA Retail   Bonus Cash - $500 HMA Military Rebate - $500 HMA Competitive Owner   Coupon - $400 HMA College Grad Rebate - $500 HMA Boost Program - $4000   Trade Allowance = Net Price $12149. On approved credit. Certain   qualifications apply to each rebate. See dealer for details. Payment   is 36 month lease with $0 due at signing. No security deposit   required. All payment and prices include HMA College Grad Rebate, HMA   Military Rebate, HMA Competitive Owner Coupon and HMA Valued Owner   Coupon. Must be active military or spouse of same to qualify for HMA   Military Rebate. Must graduate college in the next 6 months or within   the last 2 years to qualify for HMA College Grad rebate. Must own   currently registered Hyundai to qualify for HMA Valued Owner Coupon.   Must own qualifying competitive vehicle to qualify for HMA Competitive   Owner Coupon. Dude- my background is in banking specifically dealing with these scenarios. Take my advice-look for a balance transfer offer-credit card at 0%. Your cost of capital is your good credit, this is your leverage. Why pay 4.74% when you can pay 0%. Find a credit card company with a balance transfer option for 0%. Pay no interest, and own the car outright. Places to start; check the mail, or check your bank, or check local credit unions. Some credit unions are very relaxed for membership, and ask if they have zero percent balance transfers. Good Luck! "Dan's link (he deleted his answer, BTW) is fine, it showed the components of the score FICO offers.  Each input has data behind it, a bell curve of the behaviors and risk of the person behind it. For example, we've discussed utilization many time here. The ideal utilization is not 0%, but 1-19%. This does not mean paying interest, or carrying charges from month to month.  Say I had just one card with a $10K limit. I'd want to be sure I never ran a bill above $2000. If I did, I'd see a slight drop in my score, and next month, it would go back to normal. In my case, I have enough available credit that going over 20% is rare, and if it happened, I'd pay the bill down before the bill was issued, just make a mid-cycle payment.  FICO decided that those who go over 20% have a higher risk of default. And it gets higher as it goes up. Same with every aspect of the score's components.  You are comparing US to non US use. In the US, it seems far more common to use our cards. In my family's case, we use very little cash, and run most of our spending through our cards.  As far as The David is concerned, one should separate those who carry a balance from those who pay in full. The pay in full users are better off for their habits and responsible card use. In the US, it's not easy to rent a car or book a hotel with no card. Cards offer a cash rebate that adds up fast, and purchase protection from fraudulent vendors. They also offer extended warranty coverage.  The David, and others, claim that ""studies prove those using cards spend 10-15% more than cash buyers."" This is a proven fact from scientific studies. Only they don't exist. The best I've seen proves that college kids given a $20 bill spend more carefully than those given a $20 credit card. This doesn't extrapolate to a family budget, and never will. But that quote has a way of being repeated as fact. Yes, it's non-sense, thank you for reading and quoting my blog, I recognize the quote.  The report also shows accounts that have gone to collection. An electric bill isn't a regularly reported item, it's assumed your lights are on. But if you stop paying the bill and they send your account to a collection agency, you'll see it hit your report.  In response to the comment below - Journal of Experimental Psychology: Applied article titled Monopoly Money: The Effect of Payment Coupling and Form on Spending Behavior runs 13 pages but on the first page offers ""Do consumers spend differently when using one payment mode relative to another mode? For example, do consumers spend more when they receive $50 in the form of a gift card than in the form of cash? If indeed they do, then why? This research addresses these issues.""  $50? A $50 gift card is a nuisance, I try to use it up within hours of getting one. As I stated above, the behavior of a person with such a card doesn't scale to a many-thousand-per-month budget. Such articles, in my opinion, are nonsense, proving nothing.  Unfortunately, this is a bit of a tangent to the original question, and if I put up a stand-alone ""Is it a fact that people spend more if using a card than cash?"" the question would result in being closed as one that's seeking opinions, not facts."