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Zero Interest/No Interest Financing Programs
Zero Interest/No Interest Financing Programs:
Know How They work
It
has become fashionable for businesses to offer "zero interest
financing for six months," "No interest for 12 months," or "No
interest, no payments until July 1998." There is nothing
inherently wrong with these offers, and they can be a great
deal if you understand how the programs operate.
In a zero interest financing program, you are permitted to
defer paying for a purchase until a later date. If the
purchase price is paid in full by the deferred due date, no
interest charges are assessed. However, if the balance is not
paid in full by the deferred due date, interest is tacked on
to the unpaid balance -- usually retroactive to the date of
purchase. To make matters worse, the interest rate is usually
21 percent or higher.
You should understand that
there are several different zero interest financing programs,
and each has slight differences that make it difficult to
decide which one is best. The best plan offers no interest, no
payment for a set period of time, with interest charged from
the deferred due date forward (rather than from the date of
purchase) if the balance is not paid in full. That means the
consumer is getting free use of the product during the
deferred payment period and can use the money for other
purposes.
There is another plan under
which interest is paid but rebated. In these cases, interest
is charged each month, but if all the payments are made on
time and the entire purchase price is paid off on the
agreed-upon date, the interest is returned as a rebate. If you
miss a payment, pay late one month, or do not pay off the
whole balance by the due date, you don't get the rebate.
Be aware that, even in the
best zero interest financing program, minimum purchase
requirements may apply or only certain brands may be featured.
Again, there is nothing wrong with this practice, provided the
consumer is fully informed at the outset as to what the rules
are.
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