We often see a lot of 0% interest rates in malls, shops and more. This is truly eye catching and even more enticing. Simply imagine being able to have your most coveted smartphone in a jiffy yet you won’t pay it yet. Instead you will be paying it on a monthly basis.
Alas, there’s no need for you to pay the item in full because you can just pay it monthly for X number of months. You might exclaim that this is the best way for you to save money. Well is it?
The 0% interest rates are typically pushed by our credit card banks. The deduction would be credited to your credit card and the bank would pay the store and you in turn would pay your credit card bank. Though it may sound like a no-brainer decision to simply grab this option since you know for a fact that your credit card can still be able to sustain it however, this is not simple as you think. Truly the 0% sign up there is enticing and teasing us to use it. However, let us dissect this to the core.
For instance if you have a credit limit of 50,000 and you swipe a phone at 48,000 (wow that’s one pretty expensive phone right there) with 0% interest rate for 12 months, you will be paying 4,000 every month. Not bad right. Instead of paying 48,000 up front you can just pay instead 4,000 every month.
However, have you considered how much the phone is in other stores? I remembered swiping my card for a phone at 0% interest. Yes it was a good catch. However when I inquired other stores just how much my phone is on the same day, I was stunned how cheap their phones are by a few thousands. Though they don’t have the 0% interest rate, I could be able to save a few thousands if I bought it from there and not the other one.
Another thing one need to consider would be the interest. You might be surprised why we are talking about that here when we say 0% interest in the first place. Such interest would occur if there’s any balance outstanding after the period expires. Even more, if you failed to pay it on time! You will be charged with the interest rate and not to mention the late charges. This can be as much as 20% or more depending on your card type and bank.
Another thing to take into consideration is that there is no guarantee that you can shell out that much amount every month. True you might have a steady job however; this is not only your expenses for the month. There are months that you would spend more than usual. Can you still be able to allocate that amount?
Another thing would be your credit score. Credit score is the mark tagged to your account by your bank. This can affect your credit offers with regards to interest rates and even loan amounts. The greater your score is the more reliable you are. However, when you swipe on a 0% interest rate, this can drag down your score.
Let’s go back to the example of swiping the 48,000 phone with a credit limit of 50,000. This could mean you will be left only with 2,000. Hence your credit card utilization would be from 0% to 50%. Your bank would take notice and they would think you are attempting to live beyond your means which is not a good thing to their end.
There is also that enticing minimum amount to be paid in our bills. Some are so maximizing it that they tend to pay the minimum instead of the full amount. They don’t see that such also accumulate interest over time. Oh the horror of those figures. You would end up paying more than the price of the item!
Low interest rates are the companies’ way of saying that borrowing is more attractive than saving. If you have bigger purchases, this can be a good tool to trim down your payments. You can be able to maximize the potential of the 0% interest provided that you have the discipline to pay it in full and on time.
Just be very careful to avoid the pitfalls stated above. And for sure, you will be one smart and happy shopper in the end.
This is a guest post from Kuripot Pinay. She is well-known for her 52-Week Money Challenge and has been featured by several TV, radio and print media. Kuripot Pinay hopes to contribute and educate people through her blog on how to achieve financial freedom. Kuripot Pinay is Rhea Suzette Mocorro.
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