Not all in store financing deals are good ones, despite what the salesperson might say. They usually sound good at first, but sometimes when you dig deeper, you find some terms that will not be to your liking. But what are these terms that you should be looking out for?
What Is In Store Financing?
First, what exactly do we mean by in store financing?
In an effort to attract more customers and boost sales, stores will make deals with financing companies to offer great deals for their customers. The most common of these deals is zero percent interest for a set term. A remarkable deal on the surface, but dig deeper at the fine print and things changed. Here is what you need to check.
Does No Interest Mean Deferred?
First, you need to look at the terms of the low or no interest. Are you not paying the interest or is it simply deferred? There is a big difference to these two concepts and one of them can come back and bite you in the end.
No interest, would be the best possibility. If there is actually no interest, then there is no chance of being surprised at the end of your loan term, once the promotion period expires. Deferred is another matter entirely. With deferred interest, the interest still accrues, you just do not see it on your statement, at least not right away.
What can happen with deferred interest is that it can be added back onto your account. If you do not pay off the balance of your financing agreement before the set term ends, the finance company dumps all of that money back on top of your balance. It can be a nasty surprise at the end of a finance deal.
How High Is The Default Interest Rate?
That introductory interest rate will not be around forever, so make sure that you know just how high the default rate is. With those zero interest deals, it can be quite high, typically around 29 percent. That means that if you do not pay your loan off in time and interest is accumulating, the deferred interest total can be huge.
Even if there is no deferred interest, you need to be careful about what your interest rate will become. A low rate could save you in the short term, but the finance company might just know that they will be making all of that lost money back in the end.
Are The Payments Set Appropriately?
You usually do not know what the payments are going to be until you accept a loan, but if you choose to do so, you need to pay attention. This is particularly true if you have an in store financing offer with zero percent deferred interest.
What you need to check is that the minimum payment required will actually pay off your balance by the time the special finance term is done. If it is close, you need to make sure that you pay a little extra, so that your balance is zero before the term ends. Ideally, make sure that your balance is paid a full month before the promotion period ends. That will guarantee that any payment delays or errors do not affect you negatively.
Is The Sales Price Too High?
That financing offer might just be so good that the actual sales price on the product is inflated. While everybody loves a good interest deal, you have to take the purchase price into consideration. If you save 200 dollars on interest, but pay 300 dollars more for your welder, for example, this is obviously not a good deal. In this case, you may be better off buying a welder from another store that is not inflating the price, even if they have no finance deal.
Calculate the total cost of your interest and the rate of what standard interest rates would cost. Next, determine how much extra you are paying for your product and compare it to the interest money saved. This will enable you to make a smart decision.
Should You Accept In Store Financing?
So is in store financing evil? Absolutely not, you just need to be careful and realize what you are getting into. You can use your offer to save a lot of money, just be sure to take care of the details.
Make sure that you are not paying too much for your product, that you won’t end up paying a fortune in high interest at the end and that deferred interest will not get dumped on you. If you can take care of these details, you may just get a good deal out of in store financing.