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Do You Take Advantage of 0% Financing Offers?
By JLP | April 1, 2009
Here’s today’s Question of the Day:
Do you take advantage of 0% Financing Offers?
I have in the past when I purchased a TV from Best Buy. I had the option of paying full price in cash or finance the product for two years at 0% interest. I had the money available to pay for the TV outright. The decision to me was a no-brainer. I chose to finance it for two years with no interest. This was a large purchase so I figured I would get to keep my money in my high-yield savings account and take my time paying off the purchase since it was “free money.”
I set up my bank account to make the monthly payments to help make sure that the payments were made on time.
Of course there is a risk to my strategy. If I missed a payment my interest rate would soar. There’s also the chance that something might come up and I wouldn’t have the cash available to pay off the purchase IF I needed to. There are also deferred interest charges that will be charged on the account if I don’t pay it off in time. So there are risks.
One other disadvantage to buying on time is that I have a monthly payment. I HATE monthly bills and try to eliminate as many of them as possible.
So, what about you? Do you take advantage of 0% financing offers or do you pay cash anyway?
Topics: Budgeting, Credit, Credit Cards, Question of the Day | 30 Comments »
April 1st, 2009 at 9:08 am
My wife and I did this with Dell for her computer. We also did it with our honeymoon on an AMEX Blue.
April 1st, 2009 at 9:11 am
Cash every time. Not that I think it’s the best or only way to do it. I’d just rather not have one extra payment to deal with.
April 1st, 2009 at 9:27 am
We bought counter tops, which are fairly expensive and took advantage of 0% for one year. We could have paid, but I agree with you having the money in your account and paying over time is great.
This might lead to another great topic, which is escrow accounts and taxes on your mortgage. Do you use escrow or do you pay the taxes yourself. Much the same logic, why pay into escrow when that money won’t grow while in the escrow account. My lender won’t let me do it till I get to 30% LTV.
April 1st, 2009 at 9:42 am
Since you like playing with spreadsheets, why not calculate exactly how much you will earn from the money in the savings account after tax? At today’s rates, it’s not much more than grabbing the credit card rebate on a 2% rewards card.
April 1st, 2009 at 9:46 am
Absolutely take advantage of these offers. But, as you warned you have to be very cautious.
April 1st, 2009 at 9:50 am
TFB,
That’s a good point. At the time when I made the purchase, interest rates on savings accounts were much higher.
April 1st, 2009 at 10:41 am
I find it extremely hard to believe that playing games like this are worth the amount you actually save.
In addition I find it hard to believe that 0% financing has absolutely no effect on WHAT or HOW MUCH a person purchases.
I’ve found it best to ignore these kind of things. That way there is ZERO chance that I buy more than I would have or make a purchase I normally would have thought twice about. There is also ZERO percent chance I miss a payment, by my fault or by an external circumstance.
I’ve seen many a person get in trouble by thinking they are smarter than the system. You play with fire long enough…
April 1st, 2009 at 11:35 am
No, I don’t like making payments even without paying interest, because it is pledging future income. I also think “Care Credit” for dentistry is evil, because pledging your future is exactly what that is. It’s easy to believe that those on the receiving end of such plans don’t have any problem jacking up the prices, so that it can’t possibly be a fair deal or bargain for the consumer.
April 1st, 2009 at 12:43 pm
I pass up on these offers without considering them. The effort involved in having to track and remember to make payments is not worth the tiny amount of money made in interest.
I tend to try to keep my financials as simple as possible. Two credit cards (one main, one back-up in case the other isn’t accepted), one regular bank account, one high-interest savings account. I got rid of anything else a year or two ago and love the fact that tracking spending and paying bills became so easy. I also try to automate all bills and pay them by credit card. At the end of the month, only one bill comes out of my bank account – the rest is all listed on my main credit card.
Making my life complicated by accepting zero down or zero financing offers that have to be tracked and paid down just isn’t worth the peace of mind simplicity brings me.
April 1st, 2009 at 12:59 pm
Another risk that you didn’t mention but is worth considering is that 0% interest or $0 payment for a year offerings are traditionally considered credit cards and having one can impact your credit score. This just hit me recently – here’s the short story
I bought a new air conditioner and furnace system for my home and put the entire thing on a “0 payments for a year” account to earn interest. I have no other credit card debt aside from the card we pay off every month to earn 2% cash back. Time passed, mortgage interest rates decreased and we decided to refinance to save $200 / month if we could get 4.75 on a 30 year fixed (down a full point from our current 30 year fixed). We didn’t qualify b/c the high balance on the 0 payments credit card made our credit seem like we had a huge balance to available credit ratio.
We paid off the debt and are going to wait a month to see if that clears things up to try again, but the risk is that rates will rise and we will have missed a big savings opportunity.
April 1st, 2009 at 1:07 pm
Unless it is a car (and their aren’t other rebates available) – the juice is not worth the squeeze. I put it on the card, get my points, pay in full with the next bill.
April 1st, 2009 at 1:17 pm
I ask for a discount for cash, and frequently get one. It is amazing what can happen when you ask!
April 1st, 2009 at 1:26 pm
I tried it on a Dell 6 month no interest offer.
They would send me statements saying 0.00 due,
and I just figured they would send me a statement
saying $1800.00 due when it was due, after 6
months. But noooo…….
I got a statement (after 6 months) saying $0.00
DUE, but adding a $150 (or whatever
it was) interest charge! They wouldn’t take it off,
either. Now it WAS my responsibility to read ALL
the fine print, I just didn’t think Dell would
intentionally mislead me (yes, they did. $0.00
due, to me, means nothing is due). I was naive,
true, but so was Dell. In exchange for a $150.00
finance charge, they have lost a customer. I’m
typing this on a Gateway.
April 1st, 2009 at 1:55 pm
I returned from Christmas 2007 to a dead computer. NewEgg, where I was already looking, offered a 1-year 0% deal on new computers. It was paid off in ten months.
April 1st, 2009 at 2:05 pm
I don’t do it for the measly 12.50 bucks in interest, but I do it for the possible use of money.
I’d rather have a bill for 10 months at 100 bucks and have 900 (1000 – the first month’s cost) in my account….Just in case.
April 1st, 2009 at 2:18 pm
I take advantage of those offers if I really need the product. My first experience with this was when I was in my early 20s. My mother totaled her car the day after Christmas. She was ok, the car was not. She needed another car ASAP as she only had a loaner for a week. The car they decided to buy was offering 0% financing on a 3 year loan. So my parents bought their first ever new car (always bought used in the past) and for the first time in their life had a car payment (always paid cash in the past). Now its questionable whether they should have bought new, but given the need for a good car quickly it was understandable. But their decision to take 0% over 3 years instead of paying cash that day made a lot of sense. They basically got a $25k loan over the course of 3 years for nothing.
April 1st, 2009 at 5:42 pm
We have in the past. But typically we just pay off our bills each month.
April 2nd, 2009 at 1:34 am
I took advantage of a 1 year 0% interest on our mattresses. Our bank accounts were drained and we really needed a new bed so I bought it on credit. We now have the money set aside to pay for it. We’ll probably pay it in full in June since we don’t want to cut it too close.
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April 2nd, 2009 at 7:02 am
I do this every time I need to make a large purchase (appliances, tile/carpet, kichen re-do, furniture, computer, TV, home theater system, dental work, eye glasses). In each of these cases, we had the cash but wanted to hang onto it. We just bought our TV from Sears with 2 years no interest. I make sure to pay these off one month early so as not to get a nasty surprise at the end. We are just finishing up payment for furniture (bought in 2006) and the rest of our kitchen stuff (done in 2008). I don’t worry about the impact on my credit score since our only debt, other than these 0 interest things, is a car payment (mortgage already paid off).
I love using other people’s money!
April 2nd, 2009 at 7:10 am
Wow, perfect timing, JLP! Purchased some nice office furniture (I freelance) for our home office and they offered us 12 months Same-As-Cash (No Interest/No Payment). We snatched it up. It comes due on May 10 – all $5,000 of it – and the money’s sitting in our savings waiting to be paid online mid/late April. Wooo hooo!
They may bank on people overlooking the fine print, but as long as you’re vigilant about those things and REFUSE TO PAY INTEREST EVER (like us), it’s a pretty good deal!
April 2nd, 2009 at 10:08 am
I like using OPM, too. The payments and keeping track does become a hassle, though. “The juice not being worth the squeeze” as Dave #11 said may be a good point.
Plus… What if your income stream stops (layoff)? Suddenly the idea doesn’t sound so good. I must say I’ve used 0% a number of times, though.
April 2nd, 2009 at 6:44 pm
I have never taken the 0% financing offers but numerous times I have used the 0% cash advances that many cards use to offer. The thing is, I would put the cash in a good money market fund and make money using the credit card company’s cash. This was back when interest rates were higher and there was no cash advance fee, or it was capped at something reasonable. I had a pretty good thing going for a couple or few years. At one time I had free use of up to $90K in free cash that would earn me an extra $1000 to $1200 per year.
April 3rd, 2009 at 8:27 am
As long as you’ve got the cash in the bank to cover it then by all means go for the 0% financing but if you don’t you’ve got no business owning whatever it is that you’re buying. A house and car would be the only things I’d finance that I couldn’t afford to pay cash for.
April 3rd, 2009 at 6:07 pm
I don’t bite when it comes to the 0% financing.
I prefer the n% off on initial purchase when you signup for their store credit card. I payoff the balance when the statement arrives then cancel the card. Image it raise havoc with my FICO score but I see that as a good thing — it curtails the CC offers in the mail.
Done that to HD several times now. 10% off on a big purchase is a good deal.
Come to think of it I’m going to need a new water heater soon …
April 3rd, 2009 at 9:37 pm
I’d agree with Dave at 11 too. Unless it is a large purchase or interest rates on bank deposits go up, it’s likely not worth it. It doesn’t have to be a car or a house, it could be something like furnace/A/C/coil replacement, but it has to be large enough to be worth having the hustle of remembering it. I do consider it every time, but so far all the offers I saw didn’t seem to be worth it.
I can understand people doing it, even 2.8% on a $1000 is extra $28 which is close to what I recently paid for a pair of very nice designer shoes at TJ Maxx (they get more stuff from expensive stores than usual these days); or a blouse on sale even at good store. You need to take off taxes, but if one is in a lower tax bracket it may make sense. It’s really a matter of choice – whether for you the hustle is worth it or not.
April 6th, 2009 at 8:59 pm
0% got us thru our home remodeling–we figured we could make payments on the cards as our income allowed. Also utilized 0% on all our appliances. Normally I wouldn’t be so cavalier about debt and God knows I have had my share of sleepless nights b/c of it, in case things didn’t go “according to plan.” Nonethless, all has been paid off over the past several months. I appreciate not having had to draw an additional $50K+ on our equity line at 4% or so at the time. But yes, normally I prefer receiving my affinity card perks (Discover rebate, Upromise, etc.) and not messing around w/additional payments to track.
Yes I know 50K+ is nutty, but our home value has held up and my kitchen will sell my house when that day comes…
April 9th, 2009 at 9:04 pm
I used the offer, but with one condition on myself. I take the money for the purchase and take out a CD for the time period of the 0%. Of course, at my credit union, rates are better than commercial banks, but the minimum CD investment is $2,500. I bought furniture for our new house this way and I used the one year no payments, no interest, to generate interest income instead of making payments. Although it IS more trouble than just paying with cash, I feel so SAVVY using other people’s money for ONCE after spending so much on credit card debt in the past!!!
April 15th, 2009 at 9:08 am
Financé and I were lucky enough to find a dealer offering 0% financing for 60 months plus cash back on the new vehicle we were shopping for. While it is hard to resist the urge to pay extra and get rid of that monthly payment faster, it makes absolutely no sense to do that since it is TOTALLY free money!
June 18th, 2009 at 5:35 pm
I bought a TV at Best Buy and had lots of issues with the financier(HSBC) because I missed a payment. The TV ended up costing me $400 more and put a small blemish on my otherwise perfect credit history.