What is zero percent?

In finance, the term “zero percent” refers to the promotion interest rate used to attract consumers. They are often used by companies wishing to sell expensive items such as cars or household appliances.

Although zero percent financing may seem attractive, consumers should be aware of any hidden fees built into the offer and should ensure that they are able to repay the debt in full once the promotional period expires.

Key points to remember

  • Zero percent financing is an incentive offered by retailers who want to sell products that might otherwise be unaffordable for most consumers.
  • These offers are usually limited to short periods, such as six to twelve months.
  • Customers often underestimate the long-term cost of these purchases, not realizing that their interest rate may increase significantly after the promotional period.

How Zero Percent Works

Stores often offer aggressive financing packages for motivate customers to buy relatively expensive items. For example, a car dealership might offer zero percent financing for a number of years on its vehicles. Since most cars cost $30,000 or more, this type of low-cost financing could allow customers to buy the car even if they don’t have the money available to purchase it outright otherwise.

It is important to note, however, that these offers may not be as affordable as they seem. After all, zero percent offers usually only last for a limited period, such as six months or a year. After the promotional period ends, any outstanding balance will generally incur a much higher interest rate. If the customer has failed to repay his debt by that time, he may be surprised by the sudden increase in monthly payments, and may even be forced to default.

Ultimately, stores that offer zero percent financing rely on the fact that many customers will not have paid off the balance of their purchase by the end of the promotional period. They therefore hope to benefit from the much higher interest rates charged thereafter. Likewise, stores will sometimes increase the initial price of the product before offering it on flexible financing terms. For example, they might mark up the cost of a car by 5% before offering it to customers under a zero percent financing program. In cases like this, the zero percent interest offer can be misleading.

Practical example of zero percent

Kyle buys a new TV from a local big box electronics store. He is happy to see that many high-end models are offered on very generous financing terms.

One of those models, a $2,500 4K TV, is offered with zero percent financing for twelve months. Although Kyle only saved $1,500 for this purchase, he feels there’s no harm in buying the most expensive TV since he can put off payments for a full year even without paying any money. interests.

Unfortunately for Kyle, he hadn’t read the details of the offer properly. A year later, he receives his first bill from the electronics store. Since the promotional period has ended, he is now charged interest at the post-promotional rate of 20%. Unless he quickly pays off the outstanding balance on the TV, he may find that the actual cost of the purchase was far more than he had imagined.

Additionally, 0% finance offers often include a provision that will add any deferred interest to the balance owing, if the full amount is not repaid by the end of the promotional period. It pays to read the fine print of any 0% financing offer.

Disclaimer: Curated and re-published here. We do not claim anything as we translated and re-published using Google translator. All ideas and images shared only for information purpose only. Ideas and information collected through Google re-written in accordance with guidelines and published. We strictly follow Google Webmaster guidelines. You can reach us @ chiefadmin@tipsclear.com. We resolve the issues within hour to keep the work on top priority.

Read More:   The 11 Sectors Of The Stock Market & Their Biggest ETFs

Related Posts