What Does 0 Percent Financing Really Mean?

What Does 0 Percent Financing Really Mean? thumbnail

Zero percent financing is a successful and popular marketing ploy used by many companies in the 21st century business marketplace. Originating largely in the car industry, the concept of zero percent financing has spread to many other industries and companies, including furniture, equipment, appliances and virtually any other product category with significant expense.

The Basics

    Consumers are drawn to zero percent financing offers mostly because they are unaware of the importance of the details surrounding the proposed offer. In its “Auto Buyer’s Survival Guide,” the StreetWise website references CNW Marketing Research as showing that roughly nine out of 100 people actually understand what a zero percent financing offer means. This lack of consumer awareness is commonly indicated as the reason companies routinely use zero percent offers to draw customers. You must ask for details of any purchase and financing arrangement before agreeing to buy. BCS Alliance.com, a credit and debt solutions website, also notes that only about 5 percent of consumers qualify for most zero percent offers, based on credit score requirements and other qualifications.

Repayment Period

    Zero percent financing offers often include a shorter repayment period. Even paying zero percent, this puts a strain on the buyer to keep up with higher monthly payments, notes the InsiderCarSecrets.com in its article “The Truth About Zero-Percent Financing!” Also noted is that some dealerships offer shorter repayment periods of around 36 months with zero percent offers, versus the 60 to 72 month repayment periods usually available.

Financing Considerations

    Coinciding with the shorter repayment period is the issue of what happens to you if your balance is not paid during the stated zero percent time frame. For instance, a furniture store may offer six months no interest financing to qualified buyers. If you put $1,000 on your credit account, it is common for the store to send you statements only requiring that you pay a minimum of 3 to 5 percent of the balance. Paying a minimum of $50 for six months leaves you with a $700 balance. At that point, your best case scenario is that the interest spikes to 20 to 30 percent on the remaining balance. In reality, many companies add interest as though it has accumulated on the original balance of $1,000, and you pay this amount. Thus, you saved no money; your interest was simply delayed.


    Zero percent financing can result in financial benefits for savvy consumers who understand the offer and are able to pay off the debt within the financing terms to avoid interest. However, because of the often misleading communication, the concept itself is typically deemed dishonest, and, at times, an illegal bait-and-switch tactic. “They [company or salesperson] lure you in to the show room with the offer of zero percent, then they tell you you don’t qualify and try to sell you the merchandise anyway,” states BCS Alliance.com. Additionally, customers often overpay on the actual product because they are so interested in the zero percent offer that they lose sight of negotiating the best deal for the product itself.

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