Print PageEvery day we are bombarded by offers that are very tempting, especially if they are being applied to a purchase we really want to make. Following are some tips on how to understand different financial offers and whether you should accept them or not.
The “No Payments Until Next Year!” Offer
No payments for several months could be a very good deal if you are aware of the penalties that might be attached to the offer. First, to get the deal, you probably will have to apply for a credit card or line of credit. In fact, most "no payment" and/or "no interest" offers are tied to a store credit card or a "branded" credit card (a Visa card or MasterCard with the store's name on it). All have many rules in the fine print. For instance, if you're late with a payment or don't "keep your account in good order" according to the agreement’s stipulations, then you have to pay interest earlier than the promised period.
Second, you might not even qualify for the offer. In that case, there will be another plan offered but you'll find that the plan you "qualify" for doesn't have a grace period (that "no interest" period) and does have very high interest rates. By that time, you’ve already done your research, chosen the product, and may be reluctant to walk away from the sale.
Third, sometimes only large purchases (over $1,000) qualify you for the offer. You will have to be diligent to pay such a large loan off within the promotional period (i.e. "no payment for 12 months"), and you may not be reminded monthly via a statement. Beware that at the end of the "no payment" period, if there’s an outstanding balance, you will have to pay all the interest that has accrued on the full amount of purchase from the date of purchase at very high interest rates.
The “Zero Percent Financing” Offer
Car dealerships often offer “zero percent financing.” A zero-percent loan doesn't automatically mean it's a good deal, or that it's the right one for you.
Interest-free deals are reserved for customers with excellent credit. Just how good your credit needs to be varies by the manufacturer. Each car company has its own financing company with its own credit qualifications.However, most interest-free financing offers require a short financing term of three years or fewer. This means the monthly payments will be rather large if you qualify.
Take the example of borrowing $20,000 to pay for your new car. With a three-year term at zero percent interest, you would have to pay more than $555 a month in car payments. A five-year term at 3.9 percent with monthly payments of $367.43 may be more manageable, even though you have to pay interest.
It can be a dream come true for people with excellent credit. Many car shoppers, however, won’t qualify. In fact, statistics from CNW Research show that only about one-third of buyers who apply for zero-percent financing actually qualify. And among those, only around 10 percent actually close the deal, according to the National Automobile Dealers Association, because of other issues. These issues can be: fewer models to choose from and being limited to what’s in stock; and no rebate, wherein the customer is asked to choose either zero-percent financing or a cash rebate.
Car dealerships aren’t the only ones offering “zero percent financing.” At department stores, zero interest can apply to certain products but not to others. Length of time can also differ among various departments. For example, if you buy an item from one department, zero interest may run a full year. The zero interest offer on an item from another department at the same store may end six months after purchase. The deal on items purchased in still another department may end in only three months.
Zero-percent financing on computers or other electronics equipment may involve using an installment loan provided by the manufacturer. This option prevents consumers from charging the purchase to a credit card, which is the recommended method of purchasing electronics equipment. This causes you to surrender important rights to dispute charges and withhold payment under the federal Fair Credit Billing Act, should the equipment turn out to be defective.
The “No Money Down” Offer
Some companies will allow you to defer payment on major purchases for a period of time. In most cases no interest is charged, as long as you make all the payments on time, although you cannot assume always this to be the case.
These deals are great if you can pay them off by the time payment is due. If not, you may find yourself with an unwanted debt and large interest payments to match. Check that fine print to determine what interest rate you are locked into if you don't come up with the funds when they are due.
Some companies that offer “no money down” sales just raise the base price to compensate for slower payment. Sometimes interest is built into the installment payments, for example when you buy a $375 item for "four equal payments of only $99!"
The Extended Warranty Offer
Sellers of cars, major appliances and other expensive items may try to sell you a service contract or “extended warranty.” Service contracts can add hundreds to your purchase price and are rarely worth the cost. Some even duplicate warranty coverage you get automatically from a manufacturer or dealer.
In addition, the warranty may not cover all the instances that are common to warranty issues. For example, it might be void if the if the dealer or administrator goes out of business. You might need prior authorization for repair work or there might be situations when coverage can be denied. You may not have protection from common wear and tear. Also, some manufacturers do not honor warranty contracts if you fail to follow their recommendations for routine maintenance.
Source: Omni Financial®
