by Frances Stanford

Created on: September 01, 2008

Zero percent financing is an excellent way of being able to finance a debt without incurring hefty finance charges in the amount of interest that the lender charges. You can spread the payments over the length of time the 0% financing lasts. Many car dealerships have been offering this type of financing to their customers for years and many credit card companies have an introductory period during which consumers do not have to pay any interest on their outstanding balances.

If you carry a balance on a credit card that has a very high rate of interest, you can benefit by transferring this balance to a 0% credit card. Then you can make the minimum payment on the balance and pay it off more quickly because there won't be any interest deducted. You should read the fine print very carefully to know how many months you have to enjoy this privilege and perhaps divide you outstanding balance by the number of introductory months so that you have it paid in full before the expiry date. The secret to making zero percent financing work for you is to ensure that you do have your balance repaid in full during the 0% interest free period. After the introductory period is over, the interest rate will revert to the usually high one that the credit card company chooses.

There are sometimes restrictions involved with obtaining zero percent financing. These restrictions include fees charged by the merchants or companies offering such deals to consumers. They initial cost of the product you wish to buy with this type of financing may also be higher than at other locations, so it would be in your best interest to shop around.
Your credit score is a major factor in determining whether or not you actually qualify for such financing. Lenders offering 0% interest will scrutinize your credit report to ensure that you are a good risk to repay. If your credit rating is poor, you will likely be rejected when you apply for credit and this will in turn have a negative impact on your credit report because it will show up that you have applied for credit and have been rejected.

This is not to say that everything about zero percent financing is bad. If you are in the financial position to pay off the outstanding balance of the account within the specified time frame, then it will be beneficial for you. You can leave your money in your savings account and let it collect interest during the interest free term and then pay off the account. In this way you can actually make money for yourself by using this method of financing.

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