Zero Percent Financing

“If it sounds too good to be true, it probably is!” This statement should come to mind when thinking about zero-percent financing schemes. Zero-percent financing isn’t just partial to car purchases any longer. You can have zero-percent credit cards for a “limited” time, zero-percent financing on household furniture or carpet, and zero-percent financing on cosmetic surgery. Laser eye surgery sounds very tempting when you don’t have to pay for it for an entire year, right? Wrong!

Zero-percent financing is just another marketing scheme to attract the consumer. According to various statistics, very few consumers actually qualify for the zero-percent offer. For those who do qualify, the offer isn’t as wonderful as it may appear to be. Thus, it’s an important measure to read the fine print.

The following are reasons dealerships offer the zero-percent promotion:

*It brings the buyer to their door.

*If the consumer does qualify, the sales person often will not be negotiable on the price. (The finance team member also does not inform the consumer that taking the optional instant cash back offer is often better than the zero-percent offer. Watch out for the origination fee!)

*The offer may very well be for a short period of time, such as 24 or 36 months, which ultimately makes the monthly payment much higher.

Credit card companies offering zero-percent financing usually only offer them for a specific time period, such as six months. The offer seems so attractive the consumer does not realize the rate may exceed 17% at the end of that period. The credit card company may also not inform the consumer about the default rate. The default rate is the percentage rate you will pay if you do not abide by the terms and conditions, such as making one late payment or going over your limit. The default rate is usually greater than 19.99% and not to mention the default rate may be retroactive to the origination date.

Offers which delay payments or offer zero percent for a period of time are very misleading. You may not have to make a payment on the brand new bedroom set you purchased for 12 months, but you will be paying extraordinarily high retail costs and when you do finally have to make payments on it, the interest rate is often over the 19.99% mark.

Zero-percent financing is too good to be true! Just to demonstrate this, use the car example. If you buy a vehicle for $20,000 and have the option of either zero-percent financing for 36 months or $3,000 cash back, it’s better to take the $3,000 cash back, apply it to the cost of the car, and pay the 6% interest rate for 60 months. Not only will your payments be $226 cheaper per month, but you will save a whopping $237 on the total cost of that specific vehicle.

You do the math!