It is very common nowadays to see adverts for no payments, no money down, and no interest. Such advertisements are superficially appealing to their consumers as they appear to be offering an advantage to them as well as financial relief for a given period. Although these adverts are appealing to the consumers, this type of financing has both positive as well as negative effects.
This type of financing is advantageous to the people lacking money to buy a commodity at a particular time. In this case, these people can buy earlier or more than they otherwise would. The companies having this type of financing do not lose money on the deals in aggregate. Since the deals are very appealing to the customers, the companies are likely to have more sales, thus high returns. Majority of the customers going for the deals do not come out with 0% financing but rather, 1%, 2% or even 5%. Most companies have their financing desk as the last stop. This means that the customers can hardly walk away because they will have invested several hours into that new commodity.
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One of the disadvantages of this kind of financing is that the company can lose customers, especially some customers who feel cheated. It is ubiquitous for customers going for the no payments, no money down and no interest deals to skimp on their down payment (“Are “0% Financing” and “No Money Down” Offers Too Good to Be True?”, 2019). Although they go with the no money down the route, they end up signing fora long period thus making them pay higher fees of cumulative interests. Interest must factor in the overall equation for the companies to make profits. Although customers walk in thinking they are avoiding the interest, the interest is tacked on their bills (Huddleston, 2006). This, therefore, means that they end up paying more than they could with a low-interest credit card.
References
Are “0% Financing” and “No Money Down” Offers Too Good to Be True?. (2019). Retrieved 31 July 2019, from https://www.fredbeansautoloans.com/zero-percent-financing-and-no- money-down-offers-doylestown-pa/
Huddleston, C. (2006). Personal Finance News, Investing Advice, Business Forecasts-Kiplinger. Retrieved 31 July 2019, from https://www.kiplinger.com/article/credit/T016-C000-S001- the-no-interest-financing-trap.html
Why I Don't Go For 0% Financing Deals (Anymore) - The White Coat Investor - Investing & Personal Finance for Doctors. (2018). Retrieved 31 July 2019, from https://www.whitecoatinvestor.com/why-i-dont-0-financing-deals/
