#FinanceOptions #InterestFree #SmartSpending
Hey there, friends! So, last night I was at a bike shop ready to drop $1800 on a shiny new road bike 🚲💸. The cashier mentioned they offered a 0% financing option over 1 or 2 years. I was intrigued but also skeptical, so I did some digging and found out some interesting details.
Here’s what I found out:
– If not paid off before 2 years or if a payment is missed, a hefty 29% interest is charged 😱
– No administration fee, which was a plus 👍
– I opted to set up payments and use the $1800 to make more money 💰
My question to you all is: What are your thoughts on 0% financing options when purchasing items? Would you rather pay in full upfront like my girlfriend, or take advantage of the payment plan like I did?
I know some people struggle with controlling their spending habits, but are there any other drawbacks to consider with these interest-free payments? Let’s chat and share our insights! 🤔💡
And if you have any tips or solutions for maximizing the benefits of 0% financing options, feel free to share – let’s help each other out! 🌟
I mean you can finesse it. But I’d rather not have to think about it. You won’t make much money in an absolute sense on 1800$.
Is the financing handled through some third party then? I can’t imagine a bike shop wants to be dealing with administering this kind of stuff and then getting backlash from their customers when they get charged for missing a payment. In the grand scheme of things, enough people must miss a payment for them to make more money from offering this than not.
I don’t see a downside to you personally if you’re diligent with making sure you pay according to the terms.
Also, what kind of situation are you in where you can just double any amount of money lol.
I hate that these 0% financing companies exist. Someone is paying for them. (in this case it’s the merchants, through higher merchant fees, or the poorest among society who miss payments).
I’m with your girlfriend. I’d rather keep my monthly expenses low. And financing an item converts it to a mandatory expense.
>I read through the terms and if it’s not paid off before 2 years or a monthly pre authorization payment is missed the full 29% interest is charged. There was no administration fee….
I set up the payments to come out of one my payment accounts transferred $1800 into the account and called it a day….
With no administration fee and 0% financing it can be a good deal. Pay attention to the T&Cs though – the one that generally gets the most posts are the monthly pre-authorized payments. If any payment is missed for any reason then interest starts accruing. There are 2 reasons that this generally happens:
1. There was some technical glitch and payments were late. It doesn’t matter. It is your job to make sure that the payments are made on time, and,
2. People misunderstand their payment structure and end up owing some amount at the end of the loan and because it isn’t paid all the interest is applied to the loan. This is why I suggest if the loan is for 2 years you should repay it not in 24 months but in 20, 21, or 22 months so you have that grace period to confirm that everything is paid.
If you’re diligent it’s a reasonable deal. If the worst happens and you can’t pay it off in time it quickly becomes a terrible deal that quickly gets worse and worse.
I prefer just not to have to think about these things and juggle them, so I just pay up front.
I hate having debt over my head. I would have paid cash up front. You never know what the future will hold.
Everyone thinks that they will pay it off, but clearly not everyone does. If that was true, lenders wouldn’t offer this.
There are more than enough people who forget or have their circumstances change that the lender is making money from charging interest to those people. The lenders will have determined the ROI and run the numbers. But as a rough example, they could either charge 7% interest to everyone, or 0% interest with 29% interest if you fail to pay, and hope that 1 in 4 people will end up paying interest so that they still get similar profits. Financing companies aren’t doing this out of the goodness of their hearts.
Assuming you have 75$ per month to spare, theoretically, you could do something like:
1. Set up automated transfers of 1800/24 (75$) payments recurring monthly out of your bank account until the loan is paid off
2. Invest that 1800 into a 5% 2 year compounding GIC which would return you 184.50$ (pre cap gain tax) after the 2 years is up- GIC is just one example of the safest investment vehicle over the 2 years but you could also invest elsewhere.
3. Double check every month that the automated payment went through to avoid late fees causing all of the interest to apply
As long as everything turns out fine, you’ll have made some money.
Personally, I don’t think the headache is worth it.
You’re right, mathematically. I would also have taken 0% financing but kept the difference in a HISA, so there’s no risk. My math with a 5% annual return(but with monthly payments) shows 48.75 over 1 year and 93.75 over the 2 year option.
If one of those numbers sounds worth the hassle, then take it, otherwise leave it.
If you expect a different return than 5%, you can use these formulas:
12 month: (150×(12^2 +12)÷2)×(expected annual return)/12
24 month: (75×(24^2 +24)÷2)×(expected annual return)/12
^ 75 and 150 are the monthly payments. 12 and 24 in the first part are the number of payment periods. This won’t include compounding, but that will be minimal.
Here’s a more generalized formula jic:
a: amount (1800 in your case)
n: payment periods (12 or 24 in your case)
r: expected return per payment period (annual return/12 in your case)
((a/n) × (n^2 + n) / 2) × r
Simplified: (anr+ar)/2
If you can borrow money at 0% then do that all day all night. But don’t be buying stuff just for the sake of getting 0% financing.
I don’t like seeing my account total fluctuate much so I keep my monthly payments to a minimum. Insurance, property tax, savings contributions, all paid in full on a yearly basis.
It costs the store money to give you a zero percent loan, so just ask for a discount off the price instead. They’ll save money, you’ll save money.
And you won’t have a loan hanging over your head.
One thing I haven’t seen anyone mention is the post purchase experience.
Are things like warranty work covered if you’re still paying it off? I’ve seen instances where the consumer opted to split up payment over a period of time instead of a one time payment and was not covered.
It works if you can afford it. $1800 over 24 months is only $75 per month which is a lot easier to fit into your budget than a one-off $1800.
I did 0% financing for my car a few years ago, rather than paying cash. Made a good return on my savings and if I had ever been short, I pulled the payment amount from my savings.
Only possible issue would have been while buying a house, as it’s still a loan which counts towards your total debt. But I was less than 6 months away from paying off the full loan, so they were able to ignore it.
On a car or house, great, sign me up.
On a loaf of bread, means we’re fucked lol.
In all seriousness, I avoid it simply because it’s just another thing to keep track of. Hard enough to keep up with my mortgage, strata, insurance, phone bill, internet, random subscriptions etc. Adding more just gives me more to think about.