How Do Interest Free Promotional Offers Really Work?

Our washing machine’s drum bearing was going out, and our appliance repairman notified us they were authorizing replacement through our appliance protection plan. The new washer my wife and I picked out was completely covered by the plan, but we were also contemplating buying the matching dryer. As we talked about it, the sales person described a 6 month no interest finance option.

Many retailers offer similar offers, and it’s important to keep in mind exactly how they work.

Line of Credit

They may not say it, but you have to qualify for the offer. You’re actually applying for a line of credit that will either be a store credit card, or one through a major bank. Your credit will be checked and you may be approved, or declined.

No Money Upfront

When you purchase something using a no interest promotion, no money is due at the time of purchase. You get to take the item home without a single dollar out of pocket.

Minimum Monthly Payments

The promotion may be interest free, but minimum payments are still required, You’ll get a monthly statement in the mail with an amount due. The minimum payment is usually 1%-5% of the balance.

No Interest Payments

By closely inspecting your statement, you’ll note no interest is added to your balance as advertised by the promotion.

Interest Still Accumulates

While no interest is added to your balance, interest is still calculated on the balance. The interest rates for these promotions is typically very high, many of them 29.9%. The credit provider keeps track of how much interest has accumulated based on the balance and the interest rate each month.

End of Promotion

At the end of the promotional period, if the balance is zero, no additional payment is required. However, if there is any balance remaining at the end of the promotional period, even if it’s $1, all the calculated accumulated interest is added to the balance.

Interest free promotional offers can be a useful tool. It can help a consumer spread payments of a large purpose over time. But these offers have to be used correctly. The consumer needs to understand exactly what they’re getting into and it’s in their best interest (pun intended) to pay the full balance before the end of the promotional period.

How about your EOD Nation, have you ever purchased something using a no interest promotion? Did you pay the full balance by the end of the promotion?

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