The End of 0% Financing

Yesterday GE Credit Corp (GECAF) announced the end of 0% financing. GECAF along with CITI and Wells Fargo are the underwriters of 0% promotions.

Here is how it worked:

The underwriters would charge the merchant typically 5-7% of the purchase and loan you the proceeds for a year. If you paid it back, fine. If you did not, they would charge you interest at a higher rate.

It worked for the underwriters, because you would offer your house as security, and we all had excess equity in our homes.

In the present economy, we have an uncertain employment environment and declining equity in our homes....And GECAF has a delinquency rate of 60%. Remember this was once good (more interest), now its bad, because some consumers do not have the funds and equity to justify the original loan.

GECAF at one time contributed 30% of GEs corporate profits ...Hence the reason for the current $8 stock price.