Why You Should Be Careful With 0% Financing Offers

We’ve all seen them – 0% financing on certain items such as cars, electronics, appliances, jewelry, and more. The offers seem great and you may even be wondering what the catch is. Well, I know what the catch is. Actually, there are many catches. If you’re careful, a 0% financing offer can be a good…

Michelle Schroeder-Gardner

Last Updated: May 27, 2023

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Why You Should Be Careful With 0% Financing OffersWe’ve all seen them – 0% financing on certain items such as cars, electronics, appliances, jewelry, and more. The offers seem great and you may even be wondering what the catch is.

Well, I know what the catch is. Actually, there are many catches.

If you’re careful, a 0% financing offer can be a good deal. I’m not going to say that they are always bad because I know they aren’t.

I have taken part in several 0% financing offers. Some took place before I realized what the catches were (yes, I will admit that one time when I was younger I didn’t read the fine print, but thankfully I never had to experience any of the negatives), but now I’m much more careful about them due to the fact that I know there may be consequences.

Yes, some companies are great at sharing what the consequences may be, but I know that there are some companies that don’t make everything so obvious.

Below are some of the many things you should think about when it comes to 0% financing offers.

 

You may still have to pay interest.

The biggest catch of a 0% financing offer is that you may end up having to pay interest still. And, if you do, the amount may be significant.

If you don’t pay your monthly bill on time, you may have to start paying interest immediately, plus pay interest for all of the previous months or years as well. This is because you have basically voided the 0% financing contract and you will revert to their normal terms, which may be an interest rate of 25% or more.

This applies even if you are on your very last payment for the financing offer!

 

You may accidentally miss a payment.

Even if you just accidentally miss a payment (such as if you had a crazy month and forgot about a bill), then you may still have a problem. You may have great credit, a great savings rate, and more.

However, mistakes happen.

This mistake could cost you a great deal of money if you forget to make a payment on a loan that you are receiving a 0% interest rate on. So, even if you make all of the payments except for the very last one, you will be charged interest for the life of the loan, which may be thousands of dollars.

RelatedHow I Manage My Finances So I Can Save Time and Worry Less

 

You may spend more because you aren’t paying for the item upfront.

There’s a reason why retailers and companies often provide these great offers.

One of the main reasons is that by offering a monthly payment option, the average person is likely to spend more money at a company. Things can seem more affordable and attainable to the human mind when it’s broken up into a much smaller monthly payment.

Before you decide to sign up for a 0% financing offer, you should make sure that you can actually afford the payment and the whole cost. Remember, just because you think you can afford the monthly payment now, things may change in the future and you may be stuck paying for all of the interest charges as well.

 

Your credit may be damaged.

The last negative for 0% financing offers is that you may harm your credit. Your credit score may be damaged and you will be increasing your credit utilization rate.

If you plan on using your credit in the future for something big such as a new home, you may want to turn down the 0% financing offer because you may actually hurt your chance at a good interest rate on a mortgage.

RelatedThese 4 Mistakes May Be Holding You Back From A Good Credit Score

 

There are ways to take advantage of these offers.

Like I said above, I have taken advantage of several 0% financing offers. There are ways to be smart and make the purchase you are about to make worth it.

Here are my tips:

  • Mark the monthly payment date on your calendar. Whether you put it in your phone as a reminder or if you mark your kitchen calendar each month, this is a great idea so that you do not accidentally forget to make a payment.
  • Be careful about what you can actually afford. Just because whatever you are buying is on a monthly payment plan, it doesn’t mean that you should rack up tons of debt. Still be realistic about what you can afford.

Have you ever taken advantage of a 0% financing offer? Why or why not?

 


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Michelle Schroeder-Gardner

Author: Michelle Schroeder-Gardner

Hey! I’m Michelle Schroeder-Gardner and I am the founder of Making Sense of Cents. I’m passionate about all things personal finance, side hustles, making extra money, and online businesses. I have been featured in major publications such as Forbes, CNBC, Time, and Business Insider. Learn more here.

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  1. Mr Hairy

    We’ve been using 0% offers for about a decade for all our major household furniture and appliance purchases, but only after doing solid research on the finance product and obviously the appliance. If they don’t offer automatic payments we don’t bother though.

  2. This is such a great post for people to read, Michelle. I say no to financing 100% of the time and never regret it!

  3. Tara

    Other things people may not know is they may be 0% for 12-18 months, but then as soon as that 13th or 19th month hits, all the interest you would have paid on the initial full balance becomes due. That’s why it’s so important to pay off the balance within the interest free grace period.

  4. I have taken advantage of a 0% offer before, but I agree it’s a slippery slope. It really only makes sense if you have the cash on hand to buy whatever you’re after anyway. If you don’t, a lot of things could keep you from paying down the balance on time.

  5. Amy @ DebtGal

    I can easily see how these deals could become a nightmare, but thankfully I’ve only had good experiences with them. I always make sure to calculate the monthly payment needed to avoid interest, and stick to it. We last purchased new furniture with one of these deals, but also purchased a washer and dryer this way when we moved into our house. I think the interest rate on the furniture loan would’ve been 25%, had we not paid it off during the 0% period – OUCH!

    1. I agree. I have taken advantage of many of them but I know others haven’t done so well with them.

  6. Our biggest mistake with 0% finance offers was that we “said” we’d pay them off in the allotted time, but never made a plan to do so. Then “someday” came and we were left to pay the principal plus the interest as well. Ugh! When we get back into spending mode again, we’ll likely just pay cash and get it over with. 🙂

  7. Yes, saving up is always a better idea.

  8. Good job on not letting it get out of control.

  9. I actually really like 0% offers. I have used them in the past with great success. I’m just very intentional about making payments on time and paying off the balance before the promo ends.

    1. Oh, I agree! I almost always take the 0% offer when I am given it. However, it doesn’t work for many people.

  10. These 0% offers are so tempting. I am wary of using these 0% offers in case I missed something in the fine print for any deals. Thanks for the details in case I ever do. I think the most important take away for me from your post is to make sure you can afford to pay it back!

  11. Tanya @ AMindful Migration

    I’ve definitely taken advantage of 0% financing offers before because when done right – they can be a huge win.Like you, I was very careful to never miss a payment and make sure that I paid it off completely prior to the end date. I’ve also heard that some companies make the monthly minimum payments below what you need to make to pay off the item in full before the offer expires, which seems really shady to me. But people trust and don’t do the math themselves, which they know too.

    1. Yes, I have heard that before as well! Many don’t even realize that they haven’t paid it off in full due to reasons like that.

  12. I’ve never used a 0% financing offer (except for subsidized student loans!). Even for people who know exactly how to manage the payments, 0% financing is still dangerous, per your third point. This is why debt in general is so tricky! I won’t say that I’ll never use a 0% financing offer (though I’m pretty skeptical), but if I do it will be for a purchase I had planned in advance to pay cash for and instead have decided to invest the cash while making the installment payments out of cash flow.

  13. Brittney @ Life On A Discount

    Lots of great points here! We have taken advantage of a few 0% offers and are always super careful to pay attention to the terms of the agreement.

    Once, we did have a couch financed at $500 for 12 months 0% interest. Somehow, we managed to leave $3 unpaid at the end of the term and they charged us the full interest. Fortunately, it was only $35, but I was still quite irritated. We have done a few more 0% financing deals since, but make sure we set it to auto pay and calculate out the costs correctly.

    1. Oh yes, I’ve heard of a small amount being leftover before and that’s how companies get you!

  14. Dee @ Color Me Frugal

    We have had 0% introductory interest rate credit cards in the past. It worked out ok and we didn’t end up having any problems with it, but we were really cautious the whole time about making payments on time, etc. I agree that the 0% offers can be beneficial, but you need to be cautious for all the reasons you mentioned!

  15. Brett

    The fine print with 0% vehicle financing typically include a monthly charge for having the 0% that is bundled into the loan but not connected to any type of A.P.R. A typical low interest rate from your local bank or credit union can often be a better deal. Ignore the interest rate and look at the total amount finances, how many months, and the monthly payments.

  16. I always cringe when people rush to buy because of zero percent financing offers. If you can’t afford it without financing, probably isn’t the best idea to buy – no matter what the offer :/

  17. Bryan

    Years ago I financed a computer. mattress, and even a car. I never paid interest, but I DID have the debt. I couldn’t afford it. Why did I finance anything?

    Also, some 0% offers have pre-payment penalties. So if the buyer comes into money earlier, they are penalized for paying it off early. No bueno.

    Thanks for the reminder on all this stuff. The temptation still arises occasionally.

    1. Oooh yes, I forgot to mention a prepayment penalty!

  18. When it comes to financing offers, you should be more careful and I definitely agree with this “You may spend more because you aren’t paying for the item upfront.” It is very important to check if there are any hidden charges so that you will not be shocked when you receive your bills.