You’ve heard the saying, “if it seems too good to be true, it probably is?” This is most definitely the case when it comes to deferred payments and zero per cent financing, which use the lure of buy-now-pay-later and cheap money to compel you to purchase. But be warned, the appeal of these financing arrangements are often not as attractive as they seem on the surface. In many cases they end up costing you more.
“Don’t pay for 18 months,” and “Zero money down, don’t pay for a year,” sound great. You can enjoy your purchase now and then save up the money to pay it off without penalty, right? It’s better than slapping it down on your credit card and accumulating interest at the very least, right?
“As an absolute rule, the best way to make a purchase is to save up the cash and pay for it outright. When you take out a commitment of debt, whether it is on deferred payment basis or on your credit card, there is a good chance that it is going to cost you more than if you paid in cash. Sometimes it’s a lot more, “says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
“If you do make use of deferred payments, make sure that you read the fine print in detail, so that you can plan your repayment to avoid hefty interest charges,” says Schwartz.
Understand the real costs of deferring
Go with the mindset that the companies that offer deferred payments and cheap financing are trying to make money off of your debt, and then set out to determine how they are going to do that.
In many cases, you’ll be asked to pay fees. They may be called administrative fees or something else, but you are often charged these simply for taking out the loan and deferring payments.
It is essential that you understand exactly when the promotional period ends (e.g. when your first payment is due, “don’t pay for three months”, “don’t pay for a year” etc.). In most cases, if you don’t pay off the balance in full, you will be on the hook for substantial interest charges (in many cases far more than your regular credit card). In some cases you’ll be responsible for paying interest that has accrued over the promotional period as well.
Also understand that sometimes there is a delay between making a payment and applying it to your account. If you wait until the last minute, you may still be obligated to pay all of that interest.
Why zero per cent financing might cost you more
For car loans in particular, car dealers try to get you to buy by offering zero per cent financing, which sounds like a great deal. But it often is not.
Again, they aren’t going to give money away for nothing, so if they are discounting the financing, they need to take the money from somewhere else. When it comes to cars, they may be adding in extra fees, not giving you as substantial a discount on the car itself, or not offering as many features as they might be otherwise.
You will usually get more bang for your buck if you can put down a sizeable down payment or if you can pay for it entirely in cash. Cash and carry will always get you the best price on the spot and ultimately cost you the least in the long run.
Has the buy-now-pay-later mentality caused you to accumulate a lot of debt? If you adopt a cash-only approach, you’ll work towards getting out of debt. We can help you get started. Call us at or click on our online debt analysis.