What Is Zero Percent?
In assets, the term “zero percent” refers to promotional interest rates used to entice consumers. They are often inured to by businesses wishing to sell big-ticket items such as cars or home appliances.
Although zero-percent financing mightiness seem attractive, consumers should be aware of any hidden fees embedded in the offer, and should ensure that they are clever to fully repay the debt once the promotional period has expired.
- Zero percent financing is an incentive bid by retailers who wish to sell products that might otherwise be unaffordable to most consumers.
- These offers are typically meagre to short periods, such as six to twelve months.
- Customers often underestimate the long-term cost of such purchases, in the absence of to recognize that their interest rate can increase substantially after the promotional period.
How Zero Percent Oeuvres
Stores often offer aggressive financing packages to incentivize customers to purchase relatively expensive items. For warning, a car dealership might offer zero percent financing for a certain number of years on its vehicles. Given that most autos are priced at $30,000 or more, this type of low-cost financing might make it possible for customers to buy the car despite not including the cash available to buy it outright otherwise.
It is important to note, however, that these offers may not be as affordable as they non-standard like. After all, zero percent offers typically last for only a limited period of time, such as six months or one year. After the promotional while has ended, any unpaid balance will typically incur a much higher interest rate. If the customer has not managed to return the debt by that time, they might find themselves surprised by the sudden increase in monthly payments, and may plane be forced into
Real World Example of Zero Percent
Kyle is shopping for a new TV at a local big-box electronics amass. He is pleased to find that many of the high-end models are being offered under very generous financing labels.
One of these models, a $2,500 4K TV, is being offered with zero percent financing for twelve months. Although Kyle had contrariwise saved $1,500 toward this purchase, he reasons that there is no harm in purchasing the more expensive TV since he can hold off making payments on it for a full year, even without paying interest.
Unfortunately for Kyle, he had failed to adequately interpret the details of the offer. One year later, he receives his first bill from the electronics store. Because the promotional span has ended, he is now being charged interest at a post-promotional rate of 20%. Unless he quickly pays off the outstanding balance of the TV, he may become aware of that the true cost of the purchase was far greater than he had imagined.