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 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.
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.
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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