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.
Contents
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.
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.
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.
If you can only qualify for high-rate financing options, it may make sense to pay cash instead. That's because interest charges can add up very fast, making it more challenging to repay your balances. You could end up paying significantly more than your initial purchase amount due to added interest costs.
Paying with cash vs. credit helps you keep your debt in check. It can be easy to get into debt, and not so easy to get out of it. In addition to paying more in total for purchases over time, you're also accumulating more debt if you don't pay your bills off from month to month.
You must be careful to avoid getting wrapped up in the thrill of 0% deals. Although the interest costs are listed as zero, the true numbers are built into the price of the loan. Unless you're aware of this before signing on the dotted line, you may be signing into a less than stellar deal.
Dealerships don't want you to pay cash because they don't earn a commission on arranging financing. If you qualify for in-house financing, the profits they miss out on increase since they don't have to work with a third-party lender.
Rent. Writing a check can be a hassle, so if you don't have the option to pay your rent online, you might opt for cash. However, William Capece, CFP, director of business development at the JS Benefits Group, said doing so is unwise because it leaves you without a paper trail.
Using only cash has a big advantage, as Manktelow-Pimm pointed out: “When you use cash, you don't have to worry about interest charges on credit cards or loans. This can save you a lot of money in the long run.”
If you're fully committed to the cash envelope system, one of the disadvantages of using cash means you'll always be toting around cash—and sometimes a lot of it, especially after payday.
Zero-interest loans, where only the principal balance must be repaid, often lure buyers into impulsively buying cars, appliances, and other luxury goods. These loans saddle borrowers with rigid monthly payment schedules and lock them into hard deadlines by which the entire balance must be repaid.
A 0% APR is not good for your credit if you overspend, as high credit utilization and missed payments hurt your credit score. If you end up carrying a balance from month to month after the 0% period ends, you will also owe expensive interest charges, making it hard to pay your bills on time and build credit.
Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club.
Reduced Opportunities. When you take cash out of your accounts to purchase a car, you reduce your potential investment opportunities in stocks, mutual funds, etc. A loan might make more sense to save your cash for investments. Remember that a new car's value depreciates as soon as you buy it.
Most people assume that telling a car dealer that you're paying in cash is a negotiating tactic and will get you a better price. Here's the truth: it doesn't. Saying that you're paying with cash kills your negotiating power.
Paying cash may hinder your chances of getting the best deal
(If only all of us should be so lucky to have that kind of coin lying around.) If you do intend to pay cash, Bill tells us that's something you may not want to say right up front.
There are a couple ways to determine whether cash or financing is the best option for your purchase. The general rule of thumb we recommend is: Pay cash for non-necessities; finance if you're planning on investing.
If you are on the higher end of the recommendation, don't foresee any other large expenses, and can easily replenish your reserves over time, it may make sense to pay cash. If paying in cash means your emergency fund will be near $0, it may be better to finance.
Tara Alderete, director of enterprise learning at Money Management International, says it usually makes sense to prioritize debt reduction overall, but there are exceptions. “If you already have adequate savings in your emergency fund, you may want to focus on quickly eliminating debt,” Alderete says.
For buyers, there are also several advantages: Paying in cash doesn't come with any interest rates or hidden fees. Some companies will offer discounts for paying in cash. It's a better deal when purchasing assets that might depreciate in value over time.
Address: Suite 490 606 Hammes Ferry, Carterhaven, IL 62290
Phone: +8557035444877
Job: Forward IT Agent
Hobby: Fishing, Flying, Jewelry making, Digital arts, Sand art, Parkour, tabletop games
Introduction: My name is Otha Schamberger, I am a vast, good, healthy, cheerful, energetic, gorgeous, magnificent person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
