Zero percent finance offers save people money when used correctly. Read on to find out more about how to avoid the pitfalls of zero percent finance offers.
My wife suddenly stopped, pointed, and said, “That exactly what I’m looking for!” Walking through Home Depot, she had spotted an outdoor sectional couch she claimed would be perfect for our deck. She had mentioned her desire to buy an outdoor couch, but hadn’t saved enough to cover the $500 price tag hanging from the couch.
We could continue to save and hope the couch was there when we had the cash, or we could take advantage of a six month zero percent finance offer advertised near the couch.
We decided to take advantage of the offer so we could enjoy the couch during the coming months. However, before doing so we followed three simple steps to set us up for success to not pay a single penny in interest.
Determine Monthly Payment
The after tax total was about $535. With six months to pay the balance, we need to pay $90 a month to pay the balance within the 6 month offer.
Analyze Budget
We looked at our budget to ensure we could afford a $90 monthly payment.
Know the Consequences
As with most zero percent interest offers, interest accumulates during the six month, it just isn’t added to your balance. Accumulated interest is added to your account if the balance is not zero at the end of the offer period. With an interest rate of over 22%, the amount of interest added at the end of six months would be significant.
Many people use zero percent finance offers without a plan. When the offer period ends, they get a pile of interest added to their account making the purchase a bad decision. If used correctly, zero percent interest offers can help you buy something you want using credit, but pay absolutely no interest. By following these three steps before making the purchase, you can set yourself up for success as long as you execute your plan.
How about you, EOD nation, do you take advantage of zero percent interest offers? Have you ever had a balance at the end of the offer period, and been shocked by the amount added to your account?
I’ve used zero percent interest offers before. They’ve been a good way to manage cash flow, especially for unexpected expenses like dental work which otherwise would have been a serious withdrawal from my emergency fund. But you have to be careful, as you wrote, that you pay off the balance before interest is charged. Fortunately, I’ve always paid the balance off in time.