Zero Percent Financing: Understanding the Fine Print

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January 27, 2012

Dealerships and manufacturers love to offer zero percent financing as a way to get customers in the door, but the reality is that true zero percent financing is quite hard to find. While many customers may come in especially because of a great financing deal, as few as 10% will actually be able to qualify. To make matters worse, many of these deals are bloated with hidden fees and charges that can often make careful investigation of the fine print a mandatory affair.

Hidden Fees

A zero percent financing deal suggests that you are getting financing with no interest included. If this were truly the case, the companies offering the loans would soon go out of business. The whole point of a business is to turn a profit, and because 0% financing offers no profit in itself, financing companies will tend to add on a variety of fees. Annual membership fees from a few dollars to several hundred dollars can often make the cheapest loan rate the most expensive in the long run. In addition to annual fees, many 0% offers will have penalties for early repayment, which can even include retroactive interest or an array of additional charges.

Credit Limits

A common trick with 0% financing deals is to give you a credit limit that is just barely above the loan amount. Should you exceed this limit by even a penny, the creditor may be able renege on their agreement, which opens the door to vastly increased interest rates. While you may feel you can stay under the limit without problem, creditors have a habit of adding annual fees and charges at the worst possible times, and this timing can cost you a great deal.

Time Limits

While a loan may say 0% financing, you should be especially careful about verifying just how long this deal lasts. The 0% financing deal will usually only apply for a specific amount of time; should the loan not be paid off in its entirety by the deadline, large interest amounts may be added based on the original loan amount, not the remainder. These rates are commonly above 20% and if applied, can turn what seems like a great deal at first glance into a total nightmare. It is important to be honest about whether or not you can realistically pay off the loan within the specified time period, and if you can't, you may be better off passing on the deal.

More often than not, 0% financing is more a marketing gimmick than a true deal. With a variety of hidden fees, deadlines, membership dues and restrictive potential credit limits, many of these deals may seem great at first glance, but end up being a complete bait and switch in practice. Always carefully examine every letter of fine print before you sign, and be realistic in your ability to pay back the loan promptly in order to avoid many of the common pitfalls.


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