Don't Get Tricked By Special Financing

"Deals" are everywhere you turn during the holiday season. Retailers are just as eager to make a dollar as consumers are to save a dollar. Some offer seemingly extraordinary discounts while others lure you with special financing deals, especially with higher-priced items. “Pay no interest until 2015,” one might read. Another may offer “0% for 18 months.”

While you may see more of these offers during peak shopping seasons, like the winter holidays, many retailers offer them at various times all year long. No matter when you see a special financing deal, always read the fine print and make sure you understand the terms before you sign up.

Repayment Terms

Some special financing deals require you to make equal monthly payments until the end of the promotion period. Others require minimum payments and then a lump-sum payment at the end of the promotional period. A third type of plan allows you to make minimum payments until you’ve paid off the balance – paying more is an option, but not a requirement.

The Downside of Special Financing

What can make special financing a bad thing is when it’s actually a deferred-interest offer, rather than giving you a true interest-free period. The transaction is only interest-free when you pay the entire balance in full before the end of the promotional period. If you don’t pay in full by that time, interest will be added to your account retroactively starting from the date of the transaction. From then forward, you’ll be charged monthly interest (or whatever period is specified in the terms) at the regular APR until you pay off the balance.

Unfortunately, many consumers realize too late the strings attached to their no interest deals and they end up paying interest after all, making it a non-deal. The extra interest means you really didn’t get the discount you signed up for. Not only that, it could take more time than you expected to pay off your balance since the interest is added in.

The penalties on special financing deals may also be a deal-breaker. Often, missing just a single payment, even by one day or a few hours, will make you forfeit your promotional rate. The regular APR will kick in and any accrued interest (from the date of your purchase) will be added to your balance.

Minimum purchase requirements on special financing offers may cause you to spend more. For example, you may have to make a purchase of at least $500 or $1,000 to qualify for special financing. This could lead to overspending for some people, who may have planned to buy less but purchased additional items just to qualify for special financing. And of course, you’re in more debt than you set out to create.

Tips, If You Decide to Take the Offer

All that said, if you sign up for a special financing deal, take a few steps to make the most of it. First, don’t purchase more than you need to. If you have to take on extra debt just to get 0% interest, walk away. You’ll save money in the long run just by not creating more debt. Second, make sure you make all your payments on time. You don’t want to lose your rate because of something as avoidable as a missed payment. Finally, calculate the monthly payment you need to make to pay off your balance by the end of the promotion period – a month before if possible. This will ensure that you actually have a deal and that you’re not just putting off the interest for another day.