4 things nobody ever tells you about zero per cent financing

The furniture store is offering appliances on credit with no interest. Truth or trap? Here are four things nobody ever tells you about zero per cent financing.

Many car dealers and retail stores offer financing with no interest for a period of up to 84 months. These offers are attractive, and in some circumstances can be advantageous—but watch out for nasty surprises!

Although a retailer may really be offering zero per cent financing, the deal could be hiding fees, extremely high interest rates on overdue payments, or even an inflated purchase price.

• To help you decide if taking the deal is a good or bad move, here are four things you need to know about zero per cent financing.

The strategy is common: the merchant gives you a choice between zero per cent financing or a cash rebate.

• The option of low- or no-interest financing is beneficial only if it doesn’t cut into any rebates you might otherwise qualify for.
• And if you choose a more expensive car because you can get a no-interest loan, then you’re getting no real deal compared to your starting point.

Always take the time to calculate the real price, behind the financing offer.

• Remember that the clerk at the furniture store or the salesperson on the car lot isn’t a financial advisor there to help you make wise choices.
• When you want to make a major purchase, consult a credit counsellor to determine the best financial scenario.

You’re being offered zero per cent financing, but no other discounts? Make sure you’re paying the regular price and not an inflated one.

• Check the price tag at a competitor’s showroom. Although it’s illegal to do so, some companies inflate prices to compensate for lost credit charges.

A no-interest deal doesn’t necessarily mean no credit charges.

• Check if any other fees will apply, such as insurance costs or administrative costs related to obtaining credit for you. When you look at a deal from this angle, it often reveals a lot of holes.

• Read all the terms of your contract, especially the small print.

A late or missed payment could make your interest rate shoot from zero to 30 per cent for the duration of the contract. What appeared to be the deal of the century could cost you a lot more than expected if you’re not disciplined and punctual with your payments.

Getting zero per cent financing over 84 months for the purchase of a car can be beneficial if you intend to keep the vehicle for that duration.

• If not, then don’t finance the purchase of a car over more than 60 months because of the sharp depreciation it undergoes. When you go to sell or trade it in, your car may be worth less than what you have left to pay on it.

The facts on zero per cent financing are pretty clear: go into it with your eyes open.

There’s nothing wrong with taking the deal if you can respect the repayment terms, and if it allows you to buy something you couldn’t otherwise afford. Just read the fine print and be aware of your financial situation.