What is Zero Percent?
Zero percent interest rates are introductory "teaser" rates used by many sellers to lure customers to buy their service or products like credit card issuers.
The term “zero percent” in finance refers to promotional interest rates used to entice customers. They are frequently used by businesses looking to sell large-ticket items such as automobiles or home appliances.
Beware of Zero Percent Financing
Although zero-percent financing may appear appealing, consumers should be aware of any hidden fees included in the offer and ensure that they can fully repay the debt once the promotional period has expired.
Stores frequently offer aggressive financing plans to entice customers to buy relatively expensive items. For example, a car dealership may offer zero-percent financing on its vehicles for a set number of years. Given that most cars cost $30,000 or more, this type of low-cost financing may allow customers to purchase the car even if they do not have the cash to buy it outright.
Finally, stores that offer zero-percent financing are banking on the fact that many customers will fail to pay off the balance of their purchase by the end of the promotional period. As a result, they hope to benefit from the much higher interest rates charged later.
Similarly, stores will sometimes raise the product’s upfront price before offering it with flexible financing terms. For example, they might raise the price of a car by 5% before offering it to customers with 0% financing. In situations like this, the zero percent interest offer can be deceptive.