Do you like to pay upfront for your purchases or prefer to pay for them over a period of time? Does that interest rate in the latter option bother you a bit? Many of us like to pay in cash for any purchases we make to keep track of our budget, as we believe it meets our needs better.
However, what if you could keep that extra cash with you for a little bit longer, so that you can fall back on it should the need arise? 0% financing may be an option worth considering.
When Should You Use 0% Financing?
First, let’s understand how 0% financing works and how it differs from paying cash. The concept of 0% financing is as simple as “use now, pay later.” Imagine not having to save up for months and months just to fulfill an immediate need. With 0% financing, purchase what you need without having to pay the full amount today.
It can help your personal budget remain flexible while helping businesses sell more products. It’s a win-win-win; good for you, good for the seller, and good for the economy. Most of these purchases are made in-store or online using their own financing. The majority of 0% financing offers happen because the company finances the purchase to generate sales.
All you need to do is calculate what your budget can handle each month. It is good practice to have at least 3 months of payments in your savings. This allows you the financial wiggle room in case of any emergency or to make sure you can pay the loan off in the designated time. This way, you avoid any missed payment charges, or carrying a balance beyond the agreed term as written in the 0% financing agreement.
Paying cash, on the other hand, will reduce your savings by that amount. If this amount is a relatively low percentage of your total savings, then it may be better just to pay for the item. You may not want to take any chances missing the deadline associated with the 0% financing deal.
However, if the cost is relatively high to your savings, it is probably to your advantage to keep your savings and spread the payments out over the allotted term of the loan. You know your financial situation and can make decisions based on what is best for you.
Benefits of 0% Financing over Cash
To qualify for a 0% financing offer, you need good credit. Sellers look for responsible buyers, a reason many miss out on it.
Remember, 0% financing only eliminates the interest charges, but not the price you are otherwise paying for the item.
Why will you prefer 0% financing over cash? Here are a few reasons.
You can Keep Cash for Emergencies
You never know when emergency strikes. From unexpected repairs for your house to someone falling ill, you may need instant cash. You wouldn’t want to take loans to pay for emergencies. Taking 0% finance can help you save cash and stay prepared.
A Flexible Loan Term
Your contract will tell you the term of the 0% financing agreement. You can pay off the loan by then, and avoid paying anything extra. Sometimes, the 0% financing term has a shorter term, but that’s not always the case.
You Don’t have to pay More as You Would do If You Bought Later
No matter what you are saving up for, it may have a higher price tag in the future. With a 0% financing, you can get what you need immediately, and avoid paying the extra price.
When is paying cash better?
If your dealer is offering you discounts should you pay in full, and not take 0% financing, you may want to take a look at it. You should always consider what option is best for you and your money. Again, you have to consider the variables then. For instance, how much discount is on offer?
You need to take a look at your financial position to know what’s right for you.
0% financing or full payment in a go?
The 0% financing is a great option if you like to remain in control of your finances. From automotive to home furnishing to eye and dental care, 0% financing covers many industries.
You can dream big. You don’t need to remain bound by the limitations of cash, and you can pay a little each month – something that might just make more of a financial sense to you.
- By Soubhik Chakrabarti
