The Truth About Zero Percent Financing

Is 0 percent financing really free?
Is 0 percent financing really free? (Image: the button zero blue icon. (with clipping path) image by Andrey Zyk from

It sounds good when you hear it. Zero percent financing on car or credit card offers is a common promotion, but is it really a good deal for you? While a loan may have 0 percent interest rates, you may pay in other ways. In many instances, 0 percent interest is a marketing tactic and has little to do with the actual cost of the credit.

Do the Math

Some consumers get so excited about the 0 percent financing offer, they don't bother to look for the best price. This happens the most with vehicles, but can happen with any consumer item. The 0 percent offer could encourage you to go with a particular item when another may cost less. Most 0 percent offers on vehicles are given instead of rebates or other incentives that you may receive. You need to do the math. It may be cheaper to take the incentives and get a low-interest rate loan from a local credit union.

Introductory Period

Credit card companies send offers with 0 percent interest for a certain time period, after which the rates return to their normal levels. Many of these cards have higher interest rates after the introductory period than a card without the teaser rate. They also may charge higher balance transfer fees.

Credit Always Costs Money

Just because you are paying 0 percent interest on a loan or credit card does not mean that you are not paying for the credit. If you are buying a car or another item, such as furniture, the seller or the manufacturer has probably paid a fee to buy the rate down to 0 percent. Essentially, this is money that you have paid because the amount paid to buy down the loan could have been used to reduce the cost of the item.


Often, 0 percent financing on vehicles is only available for loan terms of 24 to 36 months. The higher payments may make these loans unaffordable. On consumer goods, the loan may need to be paid off within a certain time period or you will pay finance charges. The charges will probably be assessed from the beginning of the loan, so you will have no savings in finance charges over a normal loan if you don't pay it off within a certain time period.

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