Is Zero Percent Financing a Good Deal?

Zero percent financing has worked very well for new car dealerships. In fact, it has worked so well that now other types of sellers, particularly furniture companies, electronics retailers and credit card companies are getting in to the act.

The truth is that zero percent financing is nothing more than a really good marketing tool that is dishonest, very misleading, and borders on qualifying as a credit scam. It is very similar to the old "bait and switch" tactics used by sales people for decades. They 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.

Before you fall for their sales pitches, here are a few facts about zero percent financing --

(1) Only about 5% of all consumers qualify for zero percent financing. You must have an excellent credit rating and a certain amount of income to qualify. An acceptable
credit score would be at least 750 to qualify for zero percent interest.

(2) Zero percent interest rate offers always come with a relatively short pay-back period of probably not more than two years. Can you afford to pay off a new car you have financed in two years? Even with a zero percent interest rate, your monthly payments are going to be very high. So the answer is probably not, but they managed to lure you in to the showroom with the zero percent offer and they think there is a good chance you will buy anyway and accept whatever interest rate they offer you.

(3) If you don't pay for the merchandise you are buying within the agreed time period, you must pay an amount of interest agreed upon in the contract as if it had been accumulating from the date you signed the contract. For example, if you purchased furniture on a zero percent interest rate program and failed to make a monthly payment, the terms of the contract change, and the deal is off. You are now charged a very high rate of interest that began accumulating the day of your purchase and perhaps all kinds of penalty fees will be tacked on as well.

(3) Even if you do qualify for zero percent financing, sellers often make up for the lost finance charges by jacking up the price of the product. They can do this quite easily because the customer is so thrilled with the zero percent financing that he forgets or overlooks the fact that he is overpaying for the product. This is particularly true of automobile purchases. Very few people who qualify for zero percent financing will actually haggle with the car dealer or furniture store over the price since they think they're getting such a good deal with the zero percent interest rate.