Financial Freedom Expert

If you’ve ever watched television, you’ve probably seen at least one commercial for a furniture store that advertises zero percent financing for a given amount of time. This post explores what that means for you financially and how no interest can compare to paying cash.

What Zero Percent Means

While the specifics may differ depending on the store, the sale and the furniture you buy, zero percent financing usually means:

• You can take home the furniture the day you sign an agreement.
• You make payments regularly (usually monthly) until you’ve paid the total retail amount.
• As long as you finish making payments within the agreed-upon time limit, you pay no interest. If you follow the agreement and pay off your furniture before interest kicks in, buying this way is like getting an interest-free loan for the amount of the furniture. But some experts suggest that it’s not always a good idea.

The Risks of Zero Percent

While everything will be hunky-dory as long as you continue making payments, things could start to unravel if you miss a payment (for example, if you get laid off, get seriously sick, have unexpected expenses one month, etc.).

That’s why some people suggest you should never finance a furniture purchase you couldn’t pay cash for. But that doesn’t mean you should restrict yourself to low-quality furniture; rather, consider saving up the furniture’s amount and then committing to the no-interest loan. That way, your money can earn interest in the bank while you make payments.

Another Option: Paying Cash

Of course, if you do have enough cash to make a purchase, you may be able to save in another way: haggling.

• Ask when an item goes on sale. Some storeowners will discount it immediately if they know you can pay the full price up front.
• Offer a lower price than what a seller is asking. And don’t forget to mention that you can pay cash for the item you want. Right now.
• Consider shopping toward the end of the month, when many retailers are looking to move items to make inventory.

The nice thing about these two options is there’s something for everybody: if you detest confrontations and would dread offering a lowered price, opt for the zero percent deal. If you like a little give-and-take, try paying cash.

Additional Resources

Posted Prices vs. Haggling

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