Money today is worth more than the same amount of money tomorrow. That is why loans have an interest rate attached. Your loan is made at an interest rate that is high enough the loaner is willing to give you money while not being too high that you are not willing to take the loan. It is a negotiated rate, even if the only negotiation offered is “take it or leave it.”
How can you get them to offer 0% interest then? This will only happen when the benefit to the loaner is greater than you not taking their loan. It happens regularly for many mid-priced purchases. You rarely see 0% on a home mortgage because of how long of a time period is involved. You do not see 0% on loans under $100 because of the overhead costs of administering the loan.
You do see 0% loans on cars, boats and furniture on a regular basis. These loans are over a short enough time period that the value of money does not drop by a large amount. Plus, the loans are back-loaded so that if you do not pay them off on time, penalty interest amounts and fees are sufficient to add a lot of profit to the deal.
By getting you to buy, the dealer reduces their costs up front. It costs automobile dealers several hundred dollars to keep a car waiting on the lot each month. This is in reduced incentives from the manufacturer, the costs to keep the car clean, potential damage from weather and vandals, and not being able to put a more popular vehicle in that spot instead. When the market for new is down, feel free to wait for or ask for 0% interest on your loan for a car or boat.
Furniture is a little bit different. There are huge profit margins built in to the price of new furniture. Try visiting a manufacturer’s showroom that is located right next to the factory (Asheville, NC for example). The cost is hundreds of dollars lower than your local furniture store. This profit margin leads to there being a lot of competition.
Furniture stores want your business. They know most people do not buy a lot of furniture very often. They are willing to cut out some of their profit to get you as a customer. In the negotiation on what you are going to pay for furniture, a 0% interest offer is a great tool for them to get you to buy now. Plus, as mentioned above, these 0% furniture loans are loaded with penalty interest and fees if you fail to pay according to the agreement.
It is common to see limited time offers for 0% interest on credit cards. That is because it makes money for the credit card companies. Read the fine print. If you stay within the terms of the offer, you will pay no interest. Companies know that credit cards are usually not paid off within the time limit however, so they will be able to make their profit after the offer expires. Additionally, the 0% usually only applies to balance transfers. New purchases accrue interest, but you pay off the 0% interest balance first, increasing profits on the new purchases.
There is another trick to get free money from credit cards – pay the bill off completely every month. If you never carry a balance month to month, you will not get charged any interest. Depending on the timing of your purchases, that means that you can get up to 30 days free use of that money. Using this trick is smart, but you must pay attention each and every month to pay everything off in full otherwise you will be charged interest for up to 3 months.
Friends and Family
Friends and family all want to see you do well. If you get into a position where you need a small amount of money, it may be possible to borrow money from them for no interest. The risk here is what happens if you are unable to pay them back. Nobody likes to be taken advantage of. You have to ask if you are willing to risk your relationships for a short term loan, just in case. Plus, since they are friends and family, most people feel it is fair to offer them at least a slight return for their trust and friendship.
There are ways to get 0% interest for short term needs, just make certain that you are going to be able to meet the terms of those agreements. 0% is no bargain when it suddenly becomes 15%, 20% or even 30% interest instead.
If you cannot meet your needs with these short term methods for getting a 0% interest load, consider your options. Maximizing your credit worthiness will help you get as close to 0% as possible for any amount you do need to borrow. Securing the loan with what is being purchased will help too. What will help even more is finding a way to get more money – whether that is by selling something you already have or by earning more money from a job or investment.
When 0% is not available, sometimes the best option will also be to just wait until you can afford it normally.
Good luck with all your finances and financial questions.