The Hidden Digits Behind 0% Financing


Maybe you've heard the ads in car commercials on TV, or maybe you've been offered “free financing” when buying an appliance in the store. It’s likely that, at some point, you’ve heard about an exciting “0% interest” offer designed to clinch the purchasing deal, and maybe you were even tempted to accept. However, before you dive into one of these types of contracts, you may want to reconsider whether “free” money really is too good to be true.

0% Interest Credit Cards

Imagine you’re at a department store or electronics store about to make a large purchase. At the checkout, you’re offered a credit card with 0% interest that would let you avoid putting down the whole sum of money today. Sounds like a great deal – and it can be – assuming you make sure to pay off the whole balance before the interest-free period is over.

Typically, when you accept this type of card, you are accepting a “deferred interest” credit card. What that means is that, for a specified period of time, often 12 or 18 months, your balance accrues no interest and you are free to pay it off as you go. However, what you may not realize is that after that limited time is over, if you haven’t paid off the entire balance, you’ll not only have to pay interest on the sum but you’ll also be charged the interest from the 12 or 18 months before! If you decide to use a store card like this, be sure you’ll be able to pay off the total before the deferment period is over.

 

0% Interest Auto Loans

Sometimes, it’s a good idea to follow your instincts. So when you’re first thought when you hear “0% auto loan” is to ask for the catch, you’re on the right track. It is possible to get a 0% interest loan on a car, but it’s not only unlikely, but there’s usually some other type of fee or price increase to keep it from being the best possible deal.

In many circumstances, car dealerships will advertise this deal to get buyers in the door. Unfortunately, very few have the stellar credit rating required to obtain such low financing, but by the time they realize they’re going to have a much higher interest rate, they’re already heavily involved in the process and are too emotionally invested in the purchase to back out. Then, if a buyer does qualify for the 0% financing, it’s not unheard of for dealerships to inflate the price of the vehicle to make up for the lost interest.

If you really want the best deal on an auto loan, we always recommend stopping by your local financial institution before you go. Finding out how much you’re approved for and getting the best possible rate will guarantee you can shop with money in your pocket. Take out the guess work and you can shop confidently

Like this article? Read this other Smart Money article: “ “Take 2: The Two Parts of Buying a Car”

 

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