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0% Financing

Today I’m going to share with you one (of the many) stupid financial decision that I’ve made in the past. So it was 2007 and Ben was a few months old. I was working free-lance as a Recruiter/Head-Hunter for a company. After working for a few months, I was making really good money. So Nathan and I decided to re-do our kitchen in our condo. We financed the remodel at Lowes, because it was 0% interest for 12 months. We knew we would have the money with my no worries. Well by the time the year was up, 2008 had hit and no one wanted to switch jobs anymore so my income was gone and Nathan’s pay had cut back dramatically. We took the balance on the Lowe’s card and moved it to a Capital One Card, so that we wouldn’t have to pay the interest on the entire amount we financed. In 2009, we had to short-sale our condo and move in with my parents. It was another 3 years before the Capital One Card was paid off. So for 3 years we were paying for the remodel on a kitchen in a home we didn’t even live in anymore.

So let’s talk about what 0% financing really is, how it works, who qualifies and if you really need it.

Zero percent financing is a marketing tactic to bring in new business. It is a loan with a 0% interest rate for anywhere from 6 months to a few years. After the promotional period has ended, any remaining balance must be paid off at a much higher interest rate. What a 0% rate really does is tempt people who can’t afford something to buy it on credit.

Zero percent loans are advertised as being great for the consumer, but it’s really the seller who is benefiting. If they weren’t, would they do it? Nothing is free. You are either paying more for the item, overspending by adding upgrades (since you’re getting such a great deal) or you’ll be making payments over a long period of time. While you may be able to make the payments now, learn from my story, and your situation may change. Plus if you don’t pay off the whole amount, you’re charged a higher interest rate on the entire purchase amount, not just the amount left that you owe.

In order to qualify for 0% financing, you will need to have a high FICO score as well. So they may get you in with the deal, but you may not qualify. Instead of the stress of financing something, learn to save. It is much more rewarding to buy something without years of bondage to it.

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