Interest free finance sounds too good to be true, doesn’t it? It seems that wherever you look in the finance world, you’ll find that everyone’s striving towards low and no interest rates. Yet, whenever you actually find something like that, it turns out that there are just hidden costs that you weren’t paying attention to.
Luckily for you and those like you, there’s a thing called interest free finance. This type of finance is quickly gaining popularity as more and more people find out about its benefits. You no longer have to live in fear of finance as the new start of the finance world emerges.
Let’s see exactly what interest free finance is.
1. What does a 0% deal entail?
As the name states, a 0% deal is an interest free finance deal that falls under the category of personal finance. This means that you won’t be charged interest on the amount you borrow. For many, this is a dream come true. Some people simply can’t afford necessities and luxuries like new cars, so interest free finance seems like an amazing deal to them. In most cases, it is.
That being said, you shouldn’t apply for interest free deals whenever you get the chance, as there are always consequences for borrowing too much. Such consequences are mostly reflected on your power to keep borrowing money and applying for other deals.
In the aforementioned case of car purchase, you’ll only have to pay a deposit and a series of monthly payments that add up to the percentage of the car’s value that you agreed on. Hire Purchase and Personal Contract Purchase agreements are fairly common interest free deals that you can opt for when buying a car.
Before signing your contract, you should carefully consider whether you can actually afford the payments. Cash purchases can always be an alternative that suit your individual circumstances better, so don’t leave that out of the consideration process either.
2. Changes
One thing you need to pay attention to when applying for interest free deals is your own expected financial situation. There’s usually a period of time available for you to pay off the loan without the interest fees. After that period is over, the interest rates surge and you need to pay a lot more money for a certain product than you initially thought you would.
Most people go into interest free loans way too freely, with only an expectation that they’ll pay off the debt in the interest free period. Life is never that predictable, though. Nobody knows what could happen tomorrow and what kind of unwelcome surprise you may wake up to. This might require you to miss payments on your deferred interest loan, which only makes the situation harder later.
This is why you need to accept that there’s always a risk that you won’t be able to pay off the debt in time. If you want to feel safer about making such a decision, you should always have concrete evidence of your financial situation. If your situation is stable and you’ve got emergency money and savings, you can feel comfortable about applying for interest free loans. Otherwise, you should carefully think about whether this is a smart financial decision.
There’s nobody who knows your life better than you, so analyse it objectively and try to figure out if you’re really up for the challenge. If not, it may be best to wait for a more stable period in life before applying for any kind of deferred interest deal.
3. Credit cards
Applying for interest free deals is much more straightforward than applying for credit cards. When you’re buying something material like furniture or a new car, you get a deal with the store that you have to pay off the amount within a certain period of time. When it comes to credit cards, things can get somewhat more confusing.
Using your card for both no interest offers and additional purchases is what keeps things to complicated. That can backfire fairly easily if you’re not careful. First of all, you need to know that credit card companies keep your balances separate based on the origin of the balance.
In other words, if you borrow at no interest, the debt is different from any other type of debt. Using the card beyond its primary promotional purpose means that you need to pay attention to where the balance for those purchases goes. The terms on that debt should also be looked into.
4. Be smart about payments
Due to the aforementioned risks of life and credit card factors, you should always pay smart. In other words, you should pay early, often, and extra. It’s never a good idea to wait until the last minute to pay off a debt, especially if the interest rate suddenly surges after the due date. Paying down as much as possible and as quickly as possible will always save you from future trouble.
Even if it’s not much, it will bring you closer to your end goal. You won’t think about it now, but as the due date nears, you’ll be more and more glad that your past self helped your current self at the given point in time. Sadly, the minimum payment won’t be enough to pay off the debt before the ending of the promotional period. This is why you should definitely pay extra.
An exception to this rule will be the multiple types of debt credit cards. You’ll need to crunch numbers and figure out where the payments are going in order to know that you’re paying off the right debt.
5. Keep things simple
When it comes to credit cards, we’ve already said that things can get fairly complicated. When you’re using your credit card to purchase more things not of the same nature at once, it can be easy to get lost in different types of debt. Figuring out where your payments are going is also a hassle. Soon enough, you’ll be overcome by a sea of debt and financial trouble. You can avoid this and take full advantage of the interest free deals if you just keep things simple.
In other words, if you’re using a credit card with a deferred interest balance, don’t use the same card for additional purchases. This way, you’ll know exactly how much you owe and by when you owe it. As well as that, you’ll have a clear picture of how much you have paid off and how much there’s left.
Avoiding confusion is easy when you separate your credit cards. With a smart tactic like this, things will be much more clear and you’ll be able to pay off your debts much more quickly and easily.
6. Surprise charges
One thing you need to be aware of is surprise charges. A lump sum deferred interest charge can hit your account and you’ll experience sticker-shock. To make things clearer, imagine you bought something like jewellery or furniture. You’ve been paying off the debt regularly, but you come up a little short at the end of the promotional period.
After the promotional period has ended, you could see that you owe a lot more money than you thought. New charges can appear, confusing you as you thought you already paid them off. It’s not a mistake as these are retroactive interest charges which are dumped into your account as a lump sum.
You also have to be careful because the lender can end up charging additional interest on your new interest until you’ve paid everything off. For this reason, come back to the paying smart portion of this article and really work on your tactic to pay everything off before the promotional period ends.
7. Finish early
Just to be on the safe side and avoid any possible inconveniences when your promotional period ends, try to pay off your debt early. This way, you’ll save yourself the stress and trouble of thinking that you’re not going to make it by the due date.
Ideally, you should pay your debt off a few weeks before the promotional period ends. This can also help you in case you missed any details about your loan. In case extra charges appear, you’ll have enough time to pay them off before the end of the promotional period and you’ll avoid extra interest.
8. What to pay attention to
There are certain things you need to pay attention to if you want to have a nice financial future. Applying for interest free loans and deals is always a good idea, but you have to be careful about how you do it. Before applying for anything like that, you’ll need to make adequate preparations. First of all, you should try to avoid using credit for consumer purchases. Instead, try spending the money you have as it’s safer. Lay-by is also always a good option that you should take into consideration.
The interest free period won’t be there forever, so you should try to calculate if you’ll be able to afford the repayments. It’s very important to think about what happens after the interest free period ends. You should also make sure that you understand what you’re getting yourself into. Having a clear idea about the charges, fees, and interest rate after the free period expires is imperative.
So as not to fall into financial trouble, always set a reminder for when the interest free period ends. The full amount should be repaid before that reminder goes off so that you can live in your financial stability further. The credit limit should never be increased, as it may end up getting you in trouble later.
Finally, no matter how tempting it may be, don’t apply for more interest free deal and loans at the same time. Every time you submit an application, it creates an enquiry on your credit report. This can affect your borrowing power greatly and you could end up suffering the consequences when applying for credit in the future.
9. Possible downsides
Just like with everything else in life, there are possible downsides to interest free downsides. This doesn’t mean that interest free finance is bad, just that you should watch out for possible trouble. The thing Is that 0% finance won’t require you to repay any interest, but the dealers may not be willing to offer sizable discounts to subsidise the interest free deals.
That’s why interest free finance isn’t for every type of purchase. For example, if you’re looking to buy a new car, you probably won’t be able to get the model you want with free interest finance. Instead, you’ll find more affordable options such as leasing which allow you to get that brand-new car you wanted.
In some cases, an initial deposit may be required if you sign a 0% deal. If you picked a conventional HP or PCP agreement, a deposit wouldn’t have been needed when talking about the same purchase. Make sure to check the place where you’re applying for an interest free deal first. In the aforementioned case of car purchases, the deposit could even be up to 50% of the car’s total value. This doesn’t really suit the buyers who would rather spread that cost more evenly.
Conclusion
As you can see, free interest finance is something revolutionary and truly worthwhile. You don’t have to be a finance buff to understand the benefits of such a system. We’re confident that whatever your plans for your financial future are, you’ll be able to make them all come true now that you know that interest free finance is in the game, too.
Of course, it goes without saying that you should still be careful about the finance world and that you should do thorough research. Only by thinking ahead, doing research, and actually going in depth of the finance world can you actually make smart financial decisions. Interest free finance can be the best or worst thing to happen to you, all depending on if you approach it in the right way.
