Is Zero percent finance always the best deal?
When you borrow money there is always a cost attached in some way. Usually this is in the form of an interest payment on the amount borrowed. Consider it a fee for the privilege of getting the money up front and paying it back in affordable monthly repayments.
Zero percent finance is where you pay no interest. You’re still getting the money you need but paying nothing extra for the privilege, or are you? Essentially, 0% interest gives you the chance to pay the same amount as a cash buyer even though you’re spreading your payments over a longer term. The benefit of Zero percent seems obvious, but does it actually work out cheaper once we take all the variables into account and do the Maths?
There are a few things that are worth noting when it comes to Zero percent finance. It is very seldom the company itself offering the finance deal – they are usually a representative for a finance house or bank. Big names in the market place inspire a sense of confidence in consumers as they are very visible. They have large marketing budgets and are able to run advertising campaigns on TV and the radio as well as in popular magazines and newspapers. They are also often the companies offering the Zero percent finance deals as they are able to negotiate good terms with their finance companies due to volume of business. The finance company pays the company a purchase price and in turn assumes the risks of collecting the payments. In some cases, the seller is required to pay the interest that the buyer would have paid on a normal loan and in this case, that amount is simply offset through a higher selling price to the customer.
Zero percent finance deals are a great way of attracting customers. I mean, who doesn’t love something for free right? They are a great marketing tool in 2 respects, firstly, they attract customers who would not buy the product if the finance offer was not available and secondly, advertising zero percent gets people into the store, even if they ultimately don’t take advantage of the offer. The deal, however, is never guaranteed – zero percent finance deals can often be difficult to qualify for, as they tend only to be available to shoppers with very good credit scores and long credit history, thus lowering the risk to the borrower. Those with average or bad credit rates will find they don’t qualify for 0% and are offered a finance deal at a much higher rate. Zero percent financing is a nice incentive but shouldn’t be the sole determining factor in your decision. Shop around! You may find a company offering great quality kitchens at a more competitive price than the big kitchen giants and even if their finance plans incur interest, you may still end up spending less on monthly payments. Some interest free loans carry severe penalties and if for any reason you missed a payment you could find yourself trapped in a loan agreement with a very high interest rate, ultimately making it unaffordable.
Don’t take anything at face value. Do your homework and make sure that you really are getting the best deal, whether it includes interest or not.