SKINFLINT'S CITY DIARY Hire purchase minutiae
Though hire purchase deposits have been the target of the Treasury for many years in controlling inflation I recently saw some American statistics which make the point, well taken no doubt by television and furni- ture, shops, that large interest rate increases may be made to appear of little importance if the sales pitch is directed at the instalment rather than the true interest which traders are required to show in the agreement.
The American example described a man who had an agreement for $1,800 to be re- paid over twenty-four months with added-on 'interest' of 6 per cent (i.e. not the true inter- est rate of 6 per cent but the percentage added to the original agreement). The inter- est on this amount was $216 and the monthly repayment $84. If the interest is increased by one third to 8 per cent the total interest becomes $288 but the total monthly repay- ment goes to $87, an increase of only $3. Thus a one third increase of interest brings a one thirtieth increase in repayment. In practice where there is no control the trader increases the period of repayment. concealing from the uninquiring even this small in- crease.
An odd effect in the United States has been that increases in finance company charges resulted in an increase rather than a decrease in consumer lcfans. The.result has been to push inflation yet further.
It seems clear that the arithmetic and psychology' of consumer demand require greater research and attention from those who wish to protect us from our own im- providence in addition to the nationally more important subject of inflation control through attention to this aspect of consumer demand.
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