What is zero-interest financing – Loans



 

With the arrival of the economic crisis in 2008, commercial promotions have increasingly made use of the term “interest-free financing “. Just look at many car advertisements, or consumer goods like washing machines and refrigerators. This type of financing was designed precisely to entice consumers to purchase despite the difficult time. The term “zero interest” is attractive, but before proceeding with any purchase it is good to know what is meant by interest-free financing and what tricks can be hidden behind this word, to avoid bad surprises.

“Loan at zero rate” means that the loan holder receives a certain sum from the lender that presents a zero annual rate (TAN), so the loan must be repaid without interest.
For example, if you buy a car for 12,000 USD in 4 years at zero interest, taking advantage of this factor we could pay 48 monthly installments at 250 USD a month (250 × 48 = 12000), for a total sum identical to the financing itself.

Loans zero interest

Loans zero interest

This, in an ideal world where everything proceeds as the financing contractor would expect. But where can the trick be? It is very simple: in addition to the TAN, there is also the APR ( Effective Global Annual Rate), which indicates the real cost of the loan and which is not necessarily also equal to zero in loans indicated as “zero interest”! The APR is made up of additional costs related to the loan, although not indicative of interest, but it is in any case additional accessory costs such as those that may involve payment of installments, mandatory insurance, start-up costs, which can be burdened directly on those who buy the good, in whole or in part.

Therefore, if the interests are actually zero, it is not certain that there are no additional costs indicated by the APR, since they are incidental and non-interest-related. Preliminary investigation fees can even reach 5% of the cost of the good on sale!

Another “trick” used by sellers is to include in the sale price the costs required by the financial companies to obtain loans at rate 0 (those that make up the APR, so to speak), thus recovering them from the pockets of unsuspecting customers.

Obtain loans at rate zero

Obtain loans at rate zero

So, before proceeding with a zero-interest purchase, always check not only the TAG, but also the APR index which will tell you if there are additional costs or if the retailer is offering to pay these additional costs as well. If, on the other hand, these costs have been included in the sale price, you will notice this by doing some research by checking the prices offered by multiple retailers. In the event of an “inflated” price, the retailer will most likely have included the APR costs in the final sale price.

Approaching with due suspicion to these “spectacular promotions” is appropriate , because we almost never have to deal with “zero interest” in the pure state, that is, in which the selling company also bears the accessory costs of the loan. The loan always involves costs, which sellers often do not want to support making them pay their customers in a way that is not always transparent.

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