Why do merchants offer financing to consumers that scream 0% Interest in big bold letters? Well, there are two primary reasons that explain it:
- Prime credit consumers have come to expect “free” money and to pay-over-time for a large purchase, and
- Merchants feel that this type of offer catches a consumer’s attention and makes them a more competitive option.
But, then, in fine print, they disclose the lender’s onerous terms related to that wonderful 0% interest offer. It’s a “gotcha” for the consumer and it’s reputational risk for the merchant.
This lending product is known as deferred interest. Interest is deferred for a period of time agreed to by both the merchant and the lender. For instance, a 12 months deferred product means as long as the principal balance is paid in full before the end of the deferred period, interest is not owed. Should this not happen by the stroke of midnight at the last day of the 12th month, your shiny 0% interest turns into a rotten pumpkin (i.e., interest charges, typically 29.9%, are owed back to the first day). Ouch!!
Why can’t 0% interest mean 0% interest? Well, it can. A 12 months, true 0% interest program means when you take out a 36 months term loan, the first 12 months payments are calculated with no interest. Starting with the 13th month, interest commences with each payment going forward. This means you don’t lose your 0% interest benefit and only pay interest for the number of months after the 12 month that it takes you to pay off the loan.
A big benefit of this product is that it keeps your monthly payments low for as long as you want AND gives you the benefit of paying no interest for 12 months. A true 0% interest program is much better for the consumer and enables merchants to secure more sales with a longer and better pay-over-time program. SweetPay is proud to have partnered with Blue Ridge Bank and FinWise to offer such a killer product!