how zero percent works
stores often offer aggressive financing packages to incentivize customers to purchase relatively expensive items for example a car dealership might offer zero percent financing for a certain number of years on its vehicles given that most cars are priced at 30 000 or more this type of low cost financing might make it possible for customers to buy the car despite not having the cash available to buy 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 typically last for only a limited period of time such as six months or one year after the promotional period has ended any unpaid balance will typically incur a much higher interest rate if the customer has not managed to repay the debt by that time they might find themselves surprised by the sudden increase in monthly payments and may even be forced into default ultimately stores that offer zero percent financing are relying on the fact that many customers will have failed to pay off the balance of their purchase by the time the promotional period is over they therefore hope to benefit from the much higher interest rates charged afterward similarly stores will sometimes increase the upfront price of the product before offering it under flexible financing terms for instance they might increase the cost of a car by 5 before offering it to customers under a zero percent financing program in instances such as this the zero percent interest offer can be misleading real world example of zero percentkyle is shopping for a new tv at a local big box electronics store he is pleased to find that many of the high end models are being offered under very generous financing terms one of these models a 2 500 4k tv is being offered with zero percent financing for twelve months although kyle had only saved 1 500 toward this purchase he reasons that there is no harm in purchasing the more expensive tv since he can delay making payments on it for a full year even without paying interest unfortunately for kyle he had failed to adequately read the details of the offer one year later he receives his first bill from the electronics store because the promotional period has ended he is now being charged interest at a post promotional rate of 20 unless he quickly pays off the outstanding balance of the tv he may find that the true cost of the purchase was far greater than he had imagined in addition 0 financing deals often include a provision that will add any deferred interest back into the balance due if the entire amount is not paid off prior to the end of the promotional period it pays to read the fine print of any 0 financing offer 