You can save big on a large purchase with a 0% interest offer – unless you pay more in the long run.

4 minute read

Whether you’re buying a new car, a houseful of furniture or an expensive appliance, financing a large purchase with a 0% interest offer can be an excellent financing choice if you don’t have the cash to buy outright.

Many retailers offer up to 18 months or two years at no interest on certain purchases. There are also 0% APR credit card balance transfer offers out there to entice you, and if you have excellent credit, you may even qualify for 0% or 0.9% financing on a new vehicle. However, a 0% interest offer can also come with potential pitfalls.

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1. Not qualifying for the 0% rate

Not qualifying for the 0 rate

Just because a retailer, car dealership or credit card company offers an introductory 0% interest rate doesn’t mean you automatically qualify. You have a good chance of snagging that rate if you have close to perfect credit. [1] If you don’t have excellent credit, however, you may qualify for a higher interest rate.

The temptation to make the purchase anyway can be dangerous when your mind is set on the new car you just finished test driving or the new furniture you envision in your living room. Making a large purchase at the higher interest rate can blow your budget, leading to buyer’s remorse.

2. Defaulting to a higher interest rate

Defaulting to a higher interest rate

Many 0% or deferred interest offers require on-time payments to keep the low-interest rate. Pay late, and the offer ends, with a new, higher interest rate kicking in.

Read the terms and conditions of any 0% interest offer carefully. If you make a payment late and are at risk of losing the introductory interest rate, call the card issuer, store or bank and ask for one-time forgiveness. There’s no guarantee you’ll get a pass, but it’s worth a try.

3. Not paying the balance off in time

Not paying the balance off in time

Paying off a large purchase in a year or 18 months may seem easy enough on the day you sign up for the 0% offer. However, you could lose your job, rack up medical bills or have another expensive emergency, impacting your plan to make large monthly payments.

Always read the terms and conditions to find out whether the 0% interest is a “deferred interest” offer. If it’s a deferred interest offer and you don’t pay the balance by the end of the promotional period, then interest going back to your purchase date will be added to the balance, often at interest rates averaging around 26% on retail purchases.

4. Charging too much

Charging too much

Whether a 0% interest offer applies only to the initial purchase or any purchases during the introductory period, it’s easy to be swept up in a shopping frenzy, since you have an extended period to pay off the balance without paying interest.

Before you know it, you’ve doubled the amount of your original purchase, the end of the intro period is nearing, and you’re paying a high-interest rate on the remaining balance or even retroactive interest on the original balance.

5. Balance transfer fees

Balance transfer fees

When you transfer a credit card balance to a new credit card with a 0% APR for an intro period ranging anywhere from six months to 18 months, each payment goes entirely toward principal, allowing you to knock the debt out faster. If you’re disciplined, that’s a smart way to pay off credit card debt and eliminate interest.

Keep in mind, however, that most balance transfer offers charge a transfer fee ranging from 2% to 3% of each transferred balance. Transfer fees can add up, especially when transferring more than one balance. Before signing up for a 0% balance transfer offer, make sure transfer fees don’t outweigh the amount you’ll save in interest.

6. Lack of urgency

Lack of urgency

When you’re looking at 18 months to pay off what you charged with a 0% interest offer, it’s tempting to kick back and make minimum payments for a few months. After all, why not relax on your new sofa or splurge on a road trip in the new SUV you bought?

Don’t breathe too easy, though. You’re better off making much more than the minimum monthly payment, which is set up to leave you owing a balance at the end of the promotional period if that’s all you pay each month.

7. Too much overall debt

Too much overall debt

If you’re already maxed out on credit card limits, the last thing you need to do is add more debt. You may be saving interest on the new 0% offer purchase, but you’re still paying interest on your other cards and even extending how long it will take to pay them off now that you have one more monthly payment.

Hold off on the new 0% interest purchase while you pay down other debt. Meanwhile, set aside a little every month until you can pay cash for that new washer and dryer, bedroom set or vehicle down payment.

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About the Author

Deb Hipp

Deb Hipp

Deb Hipp is a full-time freelance writer based in Kansas City, Mo. Deb went from being unable to get approved for a credit card or loan 20 years ago to having excellent credit today and becoming a homeowner. Deb learned her lessons about money the hard way. Now she wants to share them to help you pay down debt, fix your credit and quit being broke all the time. Deb's personal finance and credit articles have been published at Credit Karma and The Huffington Post.

Published by Debt.com, LLC